Article

Silviya Dineva
Silviya Dineva 17 August 2016

Why CMOs Have to Use Customer Lifetime Value (E-commerce)

Customer lifetime value is the "optimization metric" in E-commerce that let CMOs allocate their efforts and adjust their budget toward the most profitable customers - those that bring the most value to the online store (in revenue) and stay loyal to the brand too.

Customer Lifetime Value for E-commerce Marketers

A recent survey discovered that companies are in digital denial.

That means that marketers refuse to accept that they have to shift towards technology, big data management, automation and utilizing different marketing tools as to acquire and retain customers. Also, to deliver as personalized communication and offers as possible. 

And that is a must! 

Customers today demand personal touch, special offers, and high-relevance at any moment they need (and not the other way around). Today companies, as Chloë Thomas discovered, cannot meet the customer expectations for service and quality of treatment with the traditional efforts.

How can Customer Lifetime Value help with that? 

CLV is the net profit value of your entire future relationship with a customer.

Fist, it gives the power to identify who the most valuable customers are and then focus your effort on them, bringing better ROI. "Effort" means allocating budgets and adjusting marketing channels for acquisition and retention campaign.

It starts in smart segmentation - based on purchase history, interaction with your online store (browsing behavior) and also activity (purchase frequency).

SI-PTTO-picture-7.png

You can see some segmentation info by Vladimir Dimitroff here, or check out this starting guide by Marketizator.

Then, it helps you align all teams as CLV integrates data from all projects - product, marketing, CS, operations etc. and then the insights spread back to align the company goals for better profit. 

Third, it gives you the chance to capitalize on your retention efforts the most.

Why to focus on existing customers?

Attracting new customers can cost 5x times as much as keeping an existing one (Lee Resources). Also, increasing customer retention rates by just 5% increase profits by 25% to 95% (Bain & Co.).Repeat customers spend 67% more than a new customer (Bain & Co.). And, 20% of your customers generate 80% of the revenue (Pareto).

Finally, it empowers online retailers and marketers to build a truly customer-centric company.

How to calculate customer lifetime value for e-commerce?

Try out a simple formula for a starter, as to see what is your state with CLV:

   CLV = CV x T = AOV x F x T   

AOV (average order value) = total revenue / total number of orders; F (purchase frequency) per customer per year = total orders per customer / unique customers; AOV and F give you the CV (average value of a customer over a period of time); T (customer lifetime) = time (years) before the customer churns.

Here is a spreadsheet for you to try the calculations right away.

Also, there are a few totally free online calculators:

How to grow your customer lifetime value for e-commerce?

Try out at least one of the following steps to uplift your KPIs like retention rates, AOV, repeat purchases, recurring revenue etc. For that matter, grow your CLV too.

Let's start!

1. Automate your marketing campaigns:

  • Integrate on-site pop-ups and mobile push notifications that are triggered by different customer actions.
  • Include automatic transactional emails in your retention and activation strategy. Send out emails, triggered by a specific action, like leaving out product, browse abandonment, first purchase, sign-up, or when you want to win back customers that seem to not buy from you anymore.

SEE ALSO: 7-day crash course - intro to email automation for e-commerce.

2. Personalize your website journey:

  • Display on-site product recommendations - trending, best-selling, complimentary or similar on the home page, category page, product page and cart page. In that way, you inspire interaction with your site, up- and cross-sell.
  • Include them in the automatic transactional emails, mentioned above.

3. Include dynamic remarketing campaigns.

  • Those ads appear on other sites after the visitor has left your, and display only personalized item suggestion.
  • Here are some set-up tips.

4. Create a loyalty program.

  • Dedicate them to very precise customer insights for your shop, industry, and category. Here is some inspiration from Lowe’s, Nordstrom, Bebe, Gilt and more. 

SocialAnnex-Perpetto-1-MyLowe-s-rewards-benefits-Card.png

Still, there are only about 5% of online stores that actually measure and use CLV.

Let's lead the talk!

Please login or register to add a comment.

Contribute Now!

Loving our articles? Do you have an insightful post that you want to shout about? Well, you've come to the right place! We are always looking for fresh Doughnuts to be a part of our community.

Popular Articles

See all
How to Review a Website — A Guide for Beginners

How to Review a Website — A Guide for Beginners

A company website is crucial for any business's digital marketing strategy. To keep up with the changing trends and customer buying behaviors, it's important to review and make necessary changes regularly...

Digital Doughnut Contributor
Digital Doughnut Contributor 25 March 2024
Read more
The World Is Shrinking: 6 Degrees of Separation Is Now 2!

The World Is Shrinking: 6 Degrees of Separation Is Now 2!

Six degrees of separation is not just a party game, it's a reality. Everyone is the world is interconnected, and thanks to social media, that connectedness gets tighter and richer each day. See the research...

Scott Christley
Scott Christley 9 August 2017
Read more
The Impact of New Technology on Marketing

The Impact of New Technology on Marketing

Technology has impacted every part of our lives. From household chores to business disciplines and etiquette, there's a gadget or app for it. Marketing has changed dramatically over the years, but what is the...

Alex Lysak
Alex Lysak 3 April 2024
Read more
Cats and Dogs Boost Your Business By 300%. Here’s How.

Cats and Dogs Boost Your Business By 300%. Here’s How.

It’s the age-old question that has endured ever since the creation of the internet: are you a cat person or a dog person? Or do you love both cats and dogs? We have both dog lovers and cat lovers at Sortlist, so it...

Aline Strouvens
Aline Strouvens 27 August 2021
Read more
What Marketing Content Do Different Age Groups like to Consume?

What Marketing Content Do Different Age Groups like to Consume?

Today marketers have a wide choice of different content types to create; from video to blogs, from memes to whitepapers. But which types of content are most suitable for different age groups?

Lisa Curry
Lisa Curry 21 October 2016
Read more