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So, you have an e-commerce business that you want to grow? Of course, you’d focus on getting new customers like most marketers and online retailers do. But that is both costly and short-sighted.
Another way to achieve profitability and growth is by retaining your existing customers and increasing their customer lifetime value. While acquiring new customers is definitely important, it is often more scalable and cost-effective to drive more value from those who are already here.
Data says that it costs 5-10 times more to acquire a new customer than to retain an existing one. Plus it doesn't hurt that you get to save on advertising, promotions, and countless other marketing efforts.
Not to mention, loyal customers spend more, promote your brand through word-of-mouth, and are less price-sensitive. This isn’t a hunch; research reveals that just a 5% increase in customer retention can lead to a profit increase of 75%
Now if that isn't a clear sign for you to focus on increasing your customer lifetime value, then what is? With the potential for significant cost savings and a clear path to business growth, prioritizing CLV is a smart decision that can put your e-commerce business on the fast track to success.
In this blog, we share the topmost strategies that can help your eCommerce business get more repeat business out of your existing customers and increase its customer lifetime value.
What is Customer Lifetime Value?
Customer lifetime value is the total amount of money a customer spends with your business throughout their relationship. It represents the net profit your business can get from a single customer over all their purchases.
Instead of focusing on individual transactions, it looks at the bigger picture of your customer base and the value they bring over time.
Let's say you run an online bakery. Someone who buys a box of cookies every week would have a higher CLV than someone who only buys one cookie box twice a year. The weekly customer would bring in a lot more money in the long run.
High CLV customers are a reliable source of income, which gives you a financial cushion. It means that you can now afford to focus and invest in winning new customers without compromising your overall stability.
How to Calculate Customer Lifetime Value?
To calculate your customer lifetime value simply multiply the total customer customer brings by the average length of their relationship with you.
CLTV = Customer Value * Average Customer Lifespan
Let's say your average customer buys $100 worth of shoes twice a year from your online store. And they have been buying from you for almost 2 years.
So, following the formula:
CLTV = $100/purchase (average customer value) x 4 purchases (2 years of buying twice a year) = $400
This means that your average customer brings in $400 throughout their shopping journey with your online store. This number only gets higher with time and your revenue increases while the churn rate goes down.
So, if your customer's lifetime value increases, it’s a sign that your customer retention and loyalty are also increasing.
What are the Benefits of Customer Lifetime Value?
Tracking customer lifetime value is one of the most if not the most important metrics for e-commerce stores. The importance of knowing the customer's lifetime value may be different for every other brand but if your focus is on long-term growth, a loyal customer base, and forecasting future decisions, then CLV should be your top priority.
Here is a closer look at why improving customer lifetime value really matters:
1. Reduced customer acquisition costs (CAC)
You might have heard this before but let us just restate that it is cheaper to retain existing customers than acquire new ones. This means a major chunk of your marketing budget would go towards acquiring new customers who may or may not make repeat purchases at all.
By focusing on your customer's lifetime value you shift your focus to retaining high-value customers. This in turn increases your retention rate, ultimately reducing customer acquisition costs over time while creating a loyal customer base that is more likely to stick around.
2. Informed Decision Making & Strategy
For example, an e-commerce store selling fitness gear online has a segment of customers who are fitness enthusiasts. They tend to place larger orders more frequently, with a customer lifetime value of $2000. Now that you have identified your high-value customers, you can target your marketing efforts more effectively.
You can spend enough to keep these customers engaged while allocating more budget to acquiring new customers with similar traits. CLV data can also be used to guide product development, plan inventory and resources, and personalize the customer experience, all with the goal of building strong, profitable customer relationships that fuel sustainable growth.
3. Increased Customer Loyalty
A focus on increasing CLV naturally leads to better customer loyalty.
When businesses focus on increasing CLV, they understand valuable customers better. This allows for targeted rewards and a better overall experience, which increases loyalty. Loyal customers, in turn, make repeat purchases, spread positive word-of-mouth, and are open to upselling, all contributing to higher CLV. Studies further prove how 77% of loyal customers are highly likely to recommend a brand to a friend. That’s free new customers for your business.
It's a positive cycle - businesses prioritize customer satisfaction, and loyal customers bring more value in return.
Top 6 Ways eCommerce Stores Can Increase Their Customer Lifetime Value
1. Provide Exceptional Customer Service
The best way to make your customers come back is to provide them with an exceptional experience when they shop with you. Excellent customer service is the backbone of a loyal customer base and a successful e-commerce store.
But when we say exceptional customer service it is not just about resolving issues or helping customers with questions about your product. It goes beyond simply answering questions.
Be there for them on the channels they prefer, fix any problems that pop up, and maybe even throw in a little extra surprise (like a discount or free gift) to show you appreciate their business. For instance, one of your customers may want assistance via an Instagram DM while the others want to talk to you on a call, making sure to connect with your customers on their preferred platform can go a long way.
When you go the extra mile, they'll remember you for the effortless experience, not just about the products you sell, building trust and loyalty for your brand.
2. Personalized Shopping Experience
Do you know that personalization can increase your store's conversion rates by up to 80%? Missing out on personalization is the same as telling your customers you don't care to know about their needs. That can be a huge red flag and rightly so.
Think about it: wouldn't you be more likely to buy from a store that recommends products you'd actually use, instead of random irrelevant suggestions?
Personalizing your customers’ online shopping experience is the same as having a friendly salesperson greet them by their name, remembering their favorite things, and suggesting products they’d love. It creates a feeling of connection and care.
The benefits go beyond happy customers, though. Studies show that brands that provide a personalized shopping experience achieve a 40% increase in customer lifetime value.
That means your customers not only buy more often, but they also stick around.
Start providing your customers with a tailored experience using Byte. Get started with Byte and engage your customers with quizzes, AI-driven product suggestions, and insightful post-purchase surveys
3. Offer Loyalty Programs
You have a 60-70% chance of selling to an existing customer, versus a 5-20% chance of selling to a new one. Like we mentioned above having loyal customers goes a long way for your E-Commerce business.
Now, check this: 84% of customers say that they are more likely to buy from a brand that offers a loyalty program. As an E-Commerce business if you don't already have an active loyalty program it's time for you to build one. Loyalty programs can significantly increase customer lifetime value by promoting repeat purchases, boosting average order value, and building deeper customer engagement.
At its core, loyalty programs are just rewards that you give your customers for shopping with your business. They can also push them to spend more per purchase, with tiered rewards and points multipliers.
On top of this, the data you collect from loyalty programs is gold. You can use it to personalize marketing and recommendations, making the shopping experience even better. Loyal customers spend more, refer friends, and stick with you for the long haul, driving up customer lifetime value.
With Giftkart, building a loyalty program for your Shopify store takes just a few minutes. Install now to get started.
4. Collect Customer Feedback
It is often said that businesses that stop listening to their customers, stop growing. Studies show the same - brands who actively collect feedback see a 60% increase in customer satisfaction, which directly translates to higher customer lifetime value.
Feedback exposes weaknesses in your products, website, or overall shopping experience. If you listen to the customer and fix the same, they keep coming back.
Feedback also helps with targeted marketing. Understanding what customers like lets you send them relevant messages, increasing engagement and sales. Plus, it shows you care. By actively addressing concerns, you reduce churn and build loyalty.
The real win? Actively acting on feedback turns happy customers into brand advocates. Feeling valued, they'll sing your praises, recommending you and boosting your customer's lifetime value through the roof.
5. Upselling and Cross-selling Relevant Products
To put it simply, upselling basically means suggesting a nicer version of a product (like a phone with more storage). Cross-selling, on the other hand, is a tactic where you recommend relevant or related items (like a case for that phone).
If used effectively, upselling and cross-selling can greatly increase the average amount a customer spends while making them happy, which directly raises the customer's lifetime value.
Think about it - if you're buying a new camera, who wouldn't mind getting a discount on a memory card? By suggesting relevant products that complement their purchase, you show you understand their needs. This builds trust and increases repeat purchases, giving your CLTV a long-term boost.
The key is to personalize your recommendations and make them helpful, not pushy. This strengthens relationships and grows your business together.
With Checkout Wiz, cross-selling and upselling are easy and quick. Crafted with a focus on increasing conversions and average order value (AOV), Checkoutwiz allows you to effortlessly upsell, show reviews, and customize the checkout flow to deliver an exceptional shopping experience. Install it now to get started.
6. Post Purchase Engagement
By reaching out to your customers after a purchase, you can build a relationship and turn one-time buyers into brand ambassadors. This is especially important because studies show that a whopping 96% of US shoppers surveyed said they'd be more likely to buy from an online store again if returning something was easy!
Start with returns. Since we now know how much it impacts customer loyalty, make sure to offer a clear return policy with easy-to-follow instructions, and multiple return options. Multiple return options (online portal, in-store drop-off) and speedy processing will leave a positive impression.
Besides that, keep your customers informed with timely emails. Order confirmations, shipping updates, and estimated delivery dates - send it all. Don't leave them in the dark. If you’re transparent to your customers, they are more likely to feel cared for.
Finally, try to become a helpful resource. Offer valuable content related to their purchase, like care instructions or troubleshooting guides. By showing you want them to have a fantastic experience, you build trust and establish yourself as an expert.
This increases customer engagement and the perceived value of your brand, boosting the customer's lifetime value.
Bonus Tip: Add a personal touch! A handwritten thank you note in the package or a birthday discount can go a long way in building a connection with your customers.
Conclusion
Customer Lifetime Value (CLV) is the holy grail of e-commerce businesses.
Every satisfied interaction, every positive review, and every repurchase contributes to a wave of positive brand sentiment that extends far beyond the initial transaction. By making such interactions positive, informative, and hassle-free, you're building trust and loyalty that translates into a higher CLV. The more invested your customers feel in your brand, the more invested they become in its success.
Use these insights to know your customers better, invest in your customer relationships, prioritize their needs, and watch your customer lifetime value climb.
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