eCommerce is a highly competitive space, and retaining a customer has become more difficult than ever after the pandemic. According to Kissmetrics, retaining an existing customer is nearly seven times less expensive than gaining a new one.
eCommerce businesses should focus on building a strong customer retention strategy and investing in the overall customer experience. The key metric that organizations need to monitor for customer retention is the Customer Lifetime Value (CLV).
In this article, you will find out what CLV is, how to calculate it, and how you can boost it!
What is Customer Lifetime Value (CLV)?
Customer Lifetime Value is the total revenue an individual customer will get in throughout their lifetime with your business. CLV calculations help determine how much time, effort, and money should be invested into acquiring new customers versus retaining existing ones.
In other words, it’s a way to measure how much revenue a single customer brings throughout their relationship with your business.
CLV = Average value of purchase x Number of purchases x Average lifespan of a customer
For example, let’s say that the average order value for your ecommerce store is $100, and each customer places an average of 10 orders over their lifetime. This would give you a CLV of $1,000 per customer.
How to measure CLV in eCommerce?
The three main aspects for measuring CLV are
- Average Order Value
- Average Purchase Frequency
- Average Customer Lifespan
Average Order Value (AOV)
The average order value is also known as the average purchase value. It is the average value of each purchase your customer makes in the defined period (e.g., one month, one year, or a specific period).
Average Purchase Value (per transaction) = Total Revenue / Number of transactions
Average Purchase Frequency (APF)
The average purchase frequency is the number of times a customer purchases from you.
Average Purchase Frequency (or Average number of transactions in a given Period)= Number of Purchases in a given period/Number of Customers
Average Customer Lifespan (ACL)
The average number of years someone purchases from your business. Consider the average customer lifespan to make an educated projection of how long the customer’s lifespan will be.
Average Lifespan of the Customer (or Retention period) = sum of customers lifespan/ number of customers
Customer Lifetime Value (CLV)
Customer lifetime value is one of the most important metrics in determining. It measures a customer’s value over the entire relationship with your company.
Customer Value = Average Sale Value per transaction x Average number of transactions in a given Time Period * Retention Time Period.
How to Boost the Customer Lifetime Value?
It’s an undeniable fact that when you view eCommerce as a financial model, you will see it as a set of transactions. But, it’s not just about the transactions. It’s about the lifetime value. You can boost your lifetime value by nurturing your customers and creating a loyal customer base with a strong retention strategy.
#1 Focus on making Onboarding Fun and Interactive
Onboarding is your first interaction with your customer, and you need to make it as engaging and fun as possible to grab your customer’s attention and engage them throughout. This is also the foundation of your relationship with your customer, which makes it an essential part of the journey.
You can make the onboarding process fun and interactive by using product walkthroughs, how-to-videos, informative tutorials, and simple screen tips.
Also, leverage gamification to smoothen their journey further. The idea is to encourage users to keep going and reward them as they progress in their journey.
This will not only make the onboarding process fun but will also will communicate your value to the users right from the start.
#2 Personalized Engagement is the key
Engaging users via email and push notifications is a great way to give them updates and keep them using your product. But, if you fail to deliver a personalized experience, users will switch to a different product in no time.
Email marketing has been proved to be the most effective way to engage and retain customers, but that doesn’t mean you can send your customer irrelevant emails and spam them. Sending personalized emails with meaningful content can improve your engagement and CLV.
“People will open good emails no matter how often you send them.”
Push notifications and In-App messages are an effective way to remind and give personalized updates to your users about their shopping carts, new products, and more. Using analytics, you can tailor notifications and emails according to what they are looking for, where they came from, and what you can do to make their experience better and fun.
This creates a strong relationship between your product and the user, increasing loyalty and CLV.
#3 Do not overlook Upselling and Cross-selling
Acquiring a new customer is far more expensive than retaining an existing one.
eCommerce offers a versatile range of products and services, which can be promoted by upselling and cross-selling to customers based on their needs, transactional data, and geographical behavior.
Upselling and cross-selling are effective ways to boost sales, increase revenue, and achieve set goals.
The best way to upsell and cross-sell is by staying relevant and sending the right message at the right time. Timing and frequency matter the most.
#4 Omnichannel Customer Service for the win
Assist your users across all devices and channels. An outstanding customer service experience is a great investment in your business to grow and increase customer retention.
Find out which device the users use frequently and assist them through screen tips and tutorials to reduce friction points.
This will also build trust in the user’s relationship with your product, resulting in increased user loyalty.
#5 Loyalty Programs are the way to go
Identify your most loyal customers and run loyalty programs for them with exciting rewards. You can keep customers engaged and reward them for being valued customers with loyalty programs. This increases customer retention, ensuring higher CLV.
This can also be accomplished by offering discounts or rewards, using loyalty cards, and setting up loyalty apps or point schemes. Incentivizing customers will increase product usage frequency and average lifespan, ultimately improving CLV.
#6 Know your Customers better with Analytics
Understanding your customers through analytics is an excellent way to improve customer experience and deliver what they need.
Analyze the customer’s preferences and needs by gaining deeper insights into behavioral, demographical, and transactional data.
Then by segmentation, you can deliver a personalized experience by sending relevant updates and notifications, increasing customer retention and loyalty.
#7 Leverage Customer Feedback Surveys and NPS
Feedback surveys, NPS, CSAT, and so on are robust tools for building customer engagement.
Listening to your customers and collecting actionable feedback to know how they feel about your products and services is an effective way to strengthen your relationship with them.
Using an intelligent survey tool can help you engage and retain your customers for a long time.
Customer lifetime value is one of the most essential metrics. It provides a complete picture of the long-term financial viability of your business.
Adopting these techniques will help you boost your CLV and gain a competitive edge among others.
If you are looking for steady growth in your eCommerce business, actively monitoring and optimizing your customer lifetime value is a must!
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