When it comes to running an ECommerce business, it is easier to sell to an old client than to find a new customer. When you are trying to sell to your previous customers, you need to make sure that they are satisfied with your services so that you can keep their interest and relationships for a long time. When you have a community of loyal customers, you can easily gain your business, but finding other new customers will take more effort and investment. The best way to understand how your relationship with your previous customers is going is to take help from customer lifetime value. Measuring your customer lifetime value will help you with valuable information regarding your customers and your business revenue.
What Do You Mean by Customer Lifetime Value?
Customer lifetime value is known as CLTV, CLV, and LTV. But whatever you call it, it means the same thing, which is the prediction of the net worth related to the ongoing relationship between your business and your existing customers. By measuring customer lifetime value, you can get an estimate of the average hours your customers spend on your E-commerce website or app. With the help of customer lifetime value, you can set a marketing budget; you can identify the most engaged and effective customers and create a better marketing plan for them. When you figure out the customer lifetime value of your business, then that measurement data can help your marketers determine the best decision that will help you maximize the efficacy of your products. It will also help your marketers spend a relative budget on advertising campaigns. CLTV will allow you to know the estimate of the total amount of money an individual customer is hoping to spend on your products in their whole lifetime. Knowing your customer lifetime value is important for your business because it helps you determine how much money you have to invest in finding new customers and in keeping a stable relationship with the customers you have already acquired. To measure the customer lifetime value of your eCommerce store, you will have to implement a simple formula for your marketing strategy.
How to Measure CLV?
There are many ways you can calculate the lifetime value of your customers. A simple way to measure it is to take the average amount of money each customer spends on your store and divide it by the churn rate or the rate at which you lose buyers each month. For instance, if your customers spend $500 each month and you lose customers at 5% each month, then the CLV for an individual customer will be $10,000. In this scenario, the duration of which your customer spends a relationship with you is 20 months. This way of calculating CLV is called subscription mode. But there is a non-subscription model that calculates the entire amount you want to earn from a new client, including the add-ons or upsells. The non-subscription CLV is measured by multiplying the Average Order Value by the number of Anticipated Purchases and Duration of Engagement. In this case, the lifetime value of a single customer can increase or drop over time depending on how many discounts and quality services you are offering. Different kinds of customers will have different levels of lifetime value, particularly when you offer products from different price levels. There are various ways you can improve the lifetime value of your customers.
How to Increase Customer Lifetime Value?
Now that you have the basic knowledge of customer lifetime value, you will need to understand how to boost it. Now we are about to assist you with some strategies.
1. Optimize the Onboarding Process
Optimizing the customer onboarding process involves analyzing how your services and products can benefit the customers. The process occurs in the initial days after the customers buy something from your store for the first time. And then they get back to your store to find other items they might be interested in. They might also have a question and want to connect with you using chat or email and in the process, they learn how your brand works. While allowing your customers to know how your company works, you will also have to be straightforward in your approach and show your customers that your brand is well ahead of other brands in your industry. You will have to make use of the customer data available in your database and offer them products and deals that might interest them. This approach works because it creates a strong connection between the clients and brands.
2. Boost Your Average Order Value
By increasing your average order value, you can also improve your customer lifetime value. There are plenty of ways you can increase average order value, by offering addons during the checkout, for example. This technique is known as upselling and cross-selling, which big companies like Amazon and McDonald’s use all the time. You will find Amazon bundling up related products and offering you a small discount to increase their average order value. Companies with an annual or monthly subscription can easily increase their customer’s lifetime value by asking their customers to use an annual billing cycle. A small boost in the average order value can help increase lifetime value with time.
3. Create Long-Lasting Relationships with Customers
To create long-term relationships with your customers, you have to come off as trustworthy. If the customers believe that you offer the best prices for the services and products, they will trust you and will come back to buy from you again. Today, social media plays a great role for all businesses to advertise their outgrowths. Therefore, to create credibility and long-term relationships with your shoppers, you will have to take a step to get to comprehend them on an intimate level. You will have to make your customers feel like they are more than customers. You will have to offer free gifts and lots of discounts after conducting surveys to get to know your customers personally. This approach works because it makes your brand unique and different from others in your industry, and when you have an actual connection with your customers, it will keep them coming back for more.
Conclusion
Customer lifetime values are a greatly beneficial metric that helps you understand the behavior of your customers, like who is coming back for more and how loyal they are to you. Moreover, calculating customer lifetime value is not that difficult. You just have to have an understanding of the value your customers bring to the whole duration of the relationship your business has with them. You can analyze your customer’s experience and ask for feedback on your products and services to know what they think about you. And then, you can understand the key points that drive CLV. Calculating CLV becomes easier when you have a long-term association with your consumers. And it will also help you improve CLTV when you start to analyze your customers’ behavior from the initial stages, especially if you are a subscription-based company. With all the insights we have provided in this post, you can easily calculate and improve your CLTV.
My name is Vijay Singh Khatri, and I enjoy meeting new people and finding ways to help them have an uplifting experience. I have had a variety of customer service opportunities, through which I was able to have fewer returned products and increased repeat customers when compared with co-workers.
