Customer lifetime value is a crucial element that ecommerce businesses use to predict potential revenue and develop strategic marketing decisions. With the competition in the e-commerce sector, your business needs to be strategic to stand out from the competition and retain customers to increase its CLV.
Every customer who purchases from your business means they value your business, but does your company meet their needs? Retaining old customers is more accessible than acquiring new ones. Therefore, once a customer purchases from your business, you must find ways to ensure they return to your business.
This article will discuss customer lifetime value, why it is essential, and strategies that ecommerce businesses can use to increase their lifetime value. Without wasting time, let’s dive in!
Table Of Content
What is Customer Lifetime Value?
Customer lifetime value refers to a business’s profit from one customer within a certain period. Thus, if your company has a high customer lifetime value, you will earn more revenue and be able to spend more on getting new customers and retaining the existing ones.
One significant way to grow your business is by retaining your existing customers and working on increasing their lifetime value. If you satisfy your customers with every purchase they make, the customer stays with you and brings more profit to your business every time they purchase.
Why is Customer Lifetime Important for Ecommerce?
Customer lifetime value helps ecommerce businesses determine the amount of profit a single customer brings to your brand within their entire customer relationship with your company. Customer lifetime value can be used to guide budget allocations, customer service policies, and marketing strategies.
Some of the reasons why CLV is essential for ecommerce business include:
- Customer Retention: A repeat customer purchases from your business from time to time. Customer lifetime value helps you in retaining old customers. Your long-term customer also refers your company to other people, especially when you offer quality products or services and excellent customer support.
- Outstanding Customer Experience: If your business focuses on customer lifetime value, it aims to offer exceptional customer service to retain customers. It also leads to this customer becoming a long-term customer.
- Improve Business Strategy: When you understand your ecommerce business LTV, it helps you determine which strategies work for your business and which don’t. If your company doesn’t have a low CLV, you must invest in loyalty programs and rewards to boost retention.
- Understand your Customers: CLV helps ecommerce business owners understand their loyal customers. You will collect other data, such as how customers purchase from you and which items they purchase often. It helps to know different ways that you can engage with the customer.
Best Strategies for Increasing Customer Lifetime Value for Ecommerce
The primary way to increase customer lifetime value is customer retention and satisfaction. To achieve that, here are some of the best strategies that ecommerce businesses can use to increase customer lifetime value.
Use Cross-Selling and Upselling
Cross-selling is the process that businesses use to convince customers to buy additional complementary products. For instance, if you sell the domain, you can recommend that a customer purchase hosting, as the two services go hand in hand.
Upselling persuades them to purchase upgraded or premium versions of the products they buy. These items are mostly more expensive to make more sales. The method works well with customers who have already purchased and are convincing new customers.
Even though cross-selling and upselling are great strategies for increasing LTV, you need to be careful about the products or services that you recommend to your customers. If you overwhelm them with too many choices, you might lose them, increasing cart abandonment.
Offer Exceptional Customer Service and Support
The rise in the digital sector has made buyers today have high demands for businesses, especially regarding customer experience and support. Most customers must communicate with you through their preferred communication channels, such as Facebook, Email, Instagram, Live chat, or phone.
Quality customer service is necessary for your ecommerce business’s success as it helps increase customer retention and business growth. To achieve this, you can invest in a chatbot like Ecommercebot to help you with customer support tasks, giving you enough time to deal with complex issues.
Calculate Customer Lifetime Value
It would help if you calculated the customer lifetime value to know how your business performs and which areas to improve.
But you will need to have the following three values:
- Average Purchase Value= Total Revenue/ Number of Purchases
- Purchase Frequency= Number of Purchases/ Number of Unique Customers
- Customer Value= Average Purchase Value X Purchase Frequency
- Average Customer Lifespan= Average Number of customers in years which they have been buying from your business
The formula for calculating your LFV is simple;
Customer Lifetime Value (CVL) = (Average Purchase Value X Purchase Frequency) X Average Customer Lifespan
Sometimes, you spend funds on marketing to attract new customers to your business. Therefore, you must account for all these expenditures when calculating your CVL.
Create Loyalty Program
Using loyalty programs can help you increase your customer retention rate, boosting your LTV. Most customers enjoy receiving gifts, so you can offer your customers discounts or rewards in different ways, like creating loyalty apps, reward points schemes, or loyalty cards. If you implement the program correctly, you can achieve a lot.
Sometimes, something other than the loyalty program might work with your business. You can start rewarding your customers after they spend a certain amount of money or give them free shipping. You can also create membership programs that provide your customers with additional rewards.
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Listen to Your Customer
Whether customers are satisfied after purchasing from your store, you will notice the overall business performance. However, to ensure you get accurate information on their performance, track the necessary data. You can collect this information through surveys, comments, or even reviews.
Understanding your customers can improve your business’s revenue and customer satisfaction. You will also get accurate data on how your customers can recommend your products or services to others.
Create Content to Engage Your Customers
The digital sector is crowded, and new strategies are needed to stand out. One way is through content marketing, which helps your customers feel closer to your brand and engaged through content. You must create content that addresses or educates your customers about your products or services. This increases your chances of increasing your customer lifetime value and reduces the hassle of acquiring new customers.
When customers develop a relationship with your business, they become loyal to you and refer your products to others. When they become loyal, they will keep purchasing from you occasionally, and publishing educational content can help you. You can publish content on social media, blogs, or through email marketing.
Build Customer Relationship
Customer expectations are increasing today. Thus, it would help if you built strong customer relationships to improve the customer lifetime value for your ecommerce. You can connect with your customers first by offering Omnichannel support, sending them personalized messages on their birthdays or other occasions, hosting events, having a community on social media, and acting on feedback.
Personalization is the key to building a relationship with your customer and standing out from the competition. With a team that focuses on personalization, you can double your customer retention, increasing customer lifetime value for ecommerce.
Final Thoughts
Customer lifetime value is crucial for any business model, especially ecommerce businesses. It helps you make business decisions and improve your marketing strategies to retain customers and increase the overall CVL. Occasionally, you must calculate customer value and find the best marketing methods.
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Some of the best ways to boost your customer lifetime value include building customer relationships, listening to your customers, creating content to engage with your customers, creating loyalty programs, and offering exceptional customer support and services. If you implement all the strategies in this article, your business will likely double in CLV.
Remember, you need to offer exceptional customer support, which can be challenging. But with the rise in AI, things are getting better, and you can use an AI chatbot to offer your customers instant and outstanding customer support. Ecommercebot is the leading chatbot that e-commerce businesses can use to offer customers an excellent customer experience and help them market on platforms like Facebook and Instagram. You can try the bot for free during the first 30 days.
Frequently Asked Questions (FAQs)
What are the factors that affect customer Lifetime Value?
Different factors affect an ecommerce business’s customer lifetime value, such as profit margin, retention rate, customer churn rate, and acquisition cost.
What are the best strategies for ecommerce businesses to increase the customer lifetime value?
Ecommerce businesses can use strategies to boost CLV, including creating loyalty programs, creating content for customers to engage with, listening to your customers, using cross-selling and upselling, offering exceptional customer services, and building customer relationships.
What is customer retention?
Customer retention is the rate at which customers purchase from your business within a certain period. E-commerce businesses always work on ways to reduce the number of defections from their customers and increase the customer retention rate.
