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).
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.
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.
Still, there are only about 5% of online stores that actually measure and use CLV.
Let's lead the talk!