An Ecommerce Guide to Customer Lifetime Value (CLV)

Long-term ecommerce success comes when you retain customers over time. Whether you run a family legacy food business or a communications conglomerate, the true value of your customers derives from the entire course of your relationship beyond individual transactions. This ecommerce guide to customer lifetime value (CLV) will help you understand how a loyal customer is more value than standalone purchasers.

The most successful businesses are able to yield higher returns per customer over extended periods of time. To that end, Apple has all but mastered customer retention. Due to their customers’ loyalty, the company enjoys bountiful profits and a high average customer lifetime value.

How Do You Calculate CLV?

There’s more than one way to calculate the lifetime value of a customer, which is part of the reason this crucial data can be so elusive to business owners. There are, however, a few solid formulas you can find online. One of the best initial sources for help is Kissmetrics. You can view their handy infographic for calculating CLV here.

In short, most CLV formulas will have you average the dollar amount a certain number of customers spend over a given time. This timeframe will vary depending on your business. For most ecommerce stores, it will be a weekly or monthly timeframe. You will then need to calculate a few other factors, such as how long people remain a customer on average, your customer retention rate and your profit margin per customer. Once you’ve calculated your CLV with a few different formulas, you can then average those results together to get a more sharply focused image of your true average CLV.

When considering how to set up an ecommerce site, it’s important to establish a website with true staying power. For example, top-notch site design and usability could boost your CLV because shoppers want to shop with you again and again. It’s all about developing a branded relationship with customers over time, rather than hoping they visit for one purchase (regardless of the size).

How Is CLV Useful to Your Ecommerce Store?

With this newly acquired knowledge, it’s time to put this information to work. Modern marketing and advertising is less about trying to attract a bunch of new customers and more about building on your current ones. This is where CLV can really come into play.

As an ecommerce storeowner, your best bet is to identify customers who are already loyal to you, and find novel ways to make them even better customers. Bill Widmer’s article on Photoslurp offers a few creative solutions; these include loyalty programs, reward points for writing product reviews, giveaways and personal SMS messaging.

The article also raises important points about how to best leverage email marketing to improve CLV. Targeted email marketing can be one of the most cost-effective ways of boosting your ecommerce store’s profitability. In terms of ROI, email marketing is also one of the best marketing tactics available to ecommerce professionals, averaging $38 in returns for every $1 spent. While new people may be less responsive to general emails from you, your loyal customers tend to engage with targeted emails at a highly lucrative rate. Knowing the CLV of your customers will help you create better, more tailored email campaigns.

In the ever-changing world of ecommerce, it’s essential to stay up-to-date on the latest marketing strategies. Implementing what you’ve learned in this ecommerce guide to customer lifetime value will help you attain healthy sales growth for your ecommerce store.

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Sunday, 22 October 2017
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