Customer Lifetime Value (CLV) is one of the most valuable metrics an ecommerce company can track. It’s immensely helpful for informing your business strategy and fine-tuning your marketing campaigns.
Actively encouraging an increase in average CLV is one of the best ways of maximizing revenue over time. In this article, we’ll look at seven strategies for doing exactly that.
Ready? Let’s dive in.
The importance of customer lifetime value
When it comes to lead generation, not all prospects are the same. Some are simply much more likely to convert into loyal customers. And that matters, because loyal customers are the key to the success of your business over the long term.
Think of it this way. What’s more valuable to your company: a customer who spends $500 on a one-off purchase, or one who drops $50 a month on your products over the course of a year?
When you look at it like this, the math is undeniable. At the end of the twelve-month period, that second customer will have spent 20% more with you than the first. What’s more – it’s likely they’ll stick around next year, too.
In essence, this is what the customer lifetime value metric is all about. It helps you identify those customers that bring the most value to your business so that you can focus on them.
This is crucial because it means you can make effective decisions about how to allocate your resources. For instance, it makes more sense to expend some effort trying to cross-sell to loyal customers who have demonstrated their willingness to return time and again, than to do this with the one-off buyer.
7 actionable tips for improving your ecommerce customer lifetime value
Attracting and retaining customers can be a challenge. After all, when a customer can simply switch loyalties with a few clicks or taps on a screen, you need to give them a good reason not to.
There are all sorts of approaches you can take to expanding your customer base: leveraging Amazon listings, for example, or partnering with influencers who are a good fit for your particular niche. But determining which of those customers will provide the greatest value to your business – and encouraging them to spend more – takes planning and commitment.
That said, maximizing CLV should be a core objective for any ecommerce company because it’s the best way of securing sustainable growth. Here are seven suggestions for how to achieve it.
Personalize the customer experience
Did you know that the global market for ecommerce personalization software is expected to reach $328.5 million by the end of 2024? That’s according to a report from market.us, which also predicts it will grow at an impressive 24.8% a year on average between now and 2033.
Image sourced from market.us report
There’s a good reason for that. When you understand your customers, you can offer them a shopping experience that’s tailored precisely to their needs and preferences. This could include:
- Sending notifications when products a customer is interested in are back in stock
- Keeping track of individual details like size or skin type
- Product recommendations based on previous purchases
- Noting important dates like birthdays and offering special deals to celebrate
There are a thousand different ways to personalize your service, but they all rely on having excellent product data and deploying it appropriately. That’s why using software to help conduct accurate customer segmentation, A/B testing, and advanced analytics can be an excellent choice.
Be responsible with your customer data
There’s nothing more damaging to your ecommerce brand than a data breach. Not only does it reduce customer trust and affect customer loyalty, but it can even have legal implications as regulations, such as the European GDPR or the Californian CCPA, have come into effect.
Customers have become increasingly aware of how their data is collected and protective of its use. This means that while personalizing the customer experience can bring a big boost, it needs to be balanced with strong data privacy.
So, firstly, you’ll want to make sure that your customer data is collected and stored securely. On top of that, you should be clear about the data you’re collecting and make it easy for customers to opt-out. While this might impact your ability to deliver a personalized experience, it will also help you to focus on customers that are truly interested in your products.
Improve customer onboarding
First impressions count. When a customer visits your site for the first time, your job is to make sure they’re fully engaged. That means educating them about all the features of your web store and the available benefits.
There are two objectives here. First, you want to encourage them to actually go through with their first purchase. Second, you need to make the thought of returning to your site to buy again as appealing as possible because that’s how you achieve increased CLV.
To this end, there are a few steps you should take:
- Design your store to be seamless to navigate, with a simple sign-up process
- Offer incentives such as free shipping or first-time purchase discounts
- Incorporate interactive elements (e.g., how-to guides or tutorials)
The point to bear in mind is that you’re attempting to lay the groundwork for a productive and lasting business relationship. And that works both ways, of course, which means it’s time to talk about how you reward customer loyalty.
Implement a loyalty program
Everyone likes to see their loyalty rewarded, so make it official. Develop a loyalty program so that your high-value customers know you appreciate them. It’s the best way of encouraging repeat purchases.
Consider implementing a points-based system that rewards customers for interacting with your brand in a number of ways, for example:
- Making purchases
- Following your social media accounts
- Leaving a product review
Customers can then exchange these for, say, discounts or gift cards.
Image sourced from zendesk.co.uk
Plan your program carefully
One challenge that you need to be aware of is how to pitch the generosity of your scheme correctly. Too little, and your customers are likely to feel it’s not worth it. Too much, and it could reduce the value of your brand and even cut deeply into your profit margins.
So, make sure you plan and budget your loyalty program in detail. There are a number of ways of doing this, and companies across the globe use different solutions. This is because the planning and focus will change depending on the size of the business and the risk potential.
For instance, a small or medium UK retailer might rely on insights and budget forecasts from their online accounting software. As their profit margins are smaller, they’re likely to want to focus on how financially viable different reward schemes are.
This is juxtaposed with huge international ecommerce companies, which can afford loss-leader strategies but are likely to rely heavily on market research to avoid a loyalty program that ultimately damages their brand.
Enhance customer support
Putting an emphasis on customer support will always pay dividends. Far too many of us have had negative experiences when trying to access help with a problem we’ve experienced. Long waiting times, unsympathetic agents, incompetent service: all of this is likely to drive customers away into the friendlier embrace of a competitor.
On the other hand, if you can deliver truly stellar service, you gain a competitive edge. When a customer has an issue and you manage to resolve it quickly and without any fuss, they’ll remember, and be much more likely to come back to buy from you again.
Actually making this happen can be a challenge, though. It’s best to use dedicated customer service software so that all your support agents will have all the information they need at their fingertips to help your clients, no matter how tricky or unusual the request.
Image sourced from aweber.com
Optimize email marketing campaigns
A lot has been said about how valuable email marketing can be, but one of the points that’s often missed is that it’s an excellent strategy for all kinds of businesses, no matter their size.
Sure, the big ecommerce giants in the US, like Amazon, leverage email campaigns regularly, focusing on sophisticated customer segmentation techniques to maximize revenue.
On the other hand, all a small craft-store startup in London needs to get started with email marketing is an email program, a client list, and mac-compatible accounting software so they can track the financial performance of their campaign on an iPad.
It really is a great leveler when it comes to marketing. That’s because it helps you reach out to your customers on a personal level, keeping them engaged and encouraging them to visit your site repeatedly.
Offer subscription services
Over the past few years, we’ve seen a blossoming of all kinds of subscription services. Most commonly, you’ll find this in industries like the media, where Netflix and Spotify, for example, have made massive successes with their respective subscription models.
But have you considered introducing a subscription element to your ecommerce business? The sports clothing company Fabletics is a good example of how this can work in practice. It offers a VIP membership tier for a monthly fee. This qualifies the customer to receive the best discounts and gives access to product exclusives.
Screenshot of fabletics.com homepage
The main benefit of this kind of model for an ecommerce operator is that it guarantees a base level of regular revenue, so it’s much easier to manage your cash flow. But it’s also a terrific way of incentivizing your clients to stick with you, driving up their CLV.
Collect and act on customer feedback
Finally, make sure you collect customer feedback regularly and fine-tune your strategy depending on what they tell you. It’s the best way of developing a deep understanding of customer needs and expectations. And that’s exactly what you need to do to inspire customer loyalty.
There are several approaches you can take, including:
- Sending out email surveys
- Social listening, where you monitor your brand mentions online
- Creating an online community to encourage discussion about your products
- Tracking product reviews
Often, a multifaceted approach is best. Quantitative metrics like the net promoter score can be useful for gauging customer sentiment, but these won’t tell you much about why your customers feel the way they do. So, it’s worth going the extra mile to find out so you can continue to deliver the top-quality service your clients expect.
Key takeaways
Focusing on customer lifetime value is useful for all kinds of businesses, but it’s absolutely essential for ecommerce companies. That’s because there are relatively few barriers to entry for online retail, and you’re up against global competition. Finding ways to hone in on your highest-value, most loyal customers is crucial to long-term success.
It might seem like an intimidating challenge, but as we’ve seen, there are quite a few things you can do to increase CLV. And if you follow the suggestions we’ve set out in this article, you’ll be putting your company in an excellent position to thrive for many years to come.
