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Effective Tactics to Increase Customer Lifetime Value in Ecommerce.

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When starting an ecommerce business, knowing what you need to do to secure the success of your undertaking is quite simple. Essentially, there are three goals you need to go after:

  • Raising awareness about your products and services.
  • Building brand authority and credibility.
  • Acquiring new customers.

However, after an initial period of focusing on these three goals, you’ll have to shift your attention from merely making sales to ensuring that your existing buyers continue shopping with your business.

The reasons for focusing on customer loyalty are fairly straightforward. 

For one, loyal customers make for the best brand ambassadors and champions. Secondly, guaranteeing that your existing buyers are happy significantly increases your chances of convincing new people to convert. And, of course, it’s important to remember that customer loyalty drives a higher customer lifetime value, which plays a crucial role in the success of your business undertaking.

But what, exactly, is customer lifetime value? And how do you increase it in ecommerce? Let’s find out.

What Is Customer Lifetime Value?

By definition, customer lifetime value (or CLV for short) stands for the total revenue an average customer will generate for your business throughout your entire relationship.

The easiest way to calculate CLV is to use the following formula:

CLV = Average Order Value x Sales Frequency (Number of Sales / Number of customers) x Average Retention Time

If the math seems too complicated, fret not. You don’t have to make the calculations entirely by hand.

Google Analytics has a handy Lifetime Value metric. So, if you wish to know how much you’re making off your clients, this is the easiest way to get an estimate about CLV. (Of course, you’ll have to make sure that your Analytics account is properly set up).

How Does Boosting CLV Benefit Your Business?

Now that you know what CLV is, let’s look at how it profits your business.

Generally, a high customer lifetime value offers three main benefits:

  1. Higher AOV (average order value). Research shows that existing customers tend to spend more than new ones. In fact, some resources suggest that existing clients spend 31% more money in your ecommerce store than new customers.
  2. Lower customer acquisition costs & higher marketing ROI. Another significant benefit of increasing CLV is that selling to existing customers tends to be cheaper than acquiring new ones. According to a 2010 research study, customer acquisition is five times costlier than customer retention. Now, imagine the results you could accomplish by getting 5x more out of your marketing budget.
  3. Better cash flow. One commonly overlooked benefit of increasing CLV is that it allows ecommerce brands to take control of their cash flow. By knowing how much people are spending with your brand, you can use the knowledge to plan for the future — whether in terms of product development, business growth, or customer satisfaction.

Tactics to Increase Customer Lifetime Value in Ecommerce

Now that you have a basic understanding of what customer lifetime value is and how it can help your business, it’s time to look into some of the best methods for increasing it on your ecommerce website.

  1. Deliver Exceptional Customer Experience

The absolute best strategy for boosting CLV (in any type of business) is to focus on the customer experience.

And there are many ways to impress buyers. Free returns, fast shipping, and flexible payment options are just a few. But, if you want to stand out in 2022 and beyond, the best way to go about improving CX is to zoom in on relevance, convenience, and value for money.

The reason for this is simple. Essentially, people are far more likely to be happy with their purchase (and become repeat customers) if they choose the right product for their needs, if the shopping experience is streamlined, and, of course, if they know they’re getting a good deal. So, by setting up systems that will ensure these criteria are met, you can effectively help people to have a better time shopping on your website, guarantee their satisfaction with their purchased products, and get them to buy from your store more often.

For a great example of how you can achieve this effect on your ecommerce site, check out the SomniFix homepage. 

Source: somnifix.com

At the bottom of the page, the brand invites customers to find out if its products are the right fit for them. Taking them through a couple of questions and giving product recommendations based on them, the brand exponentially increases the chances of buyers being happy with their purchase. This, in turn, instantly boosts customer loyalty and, consequently, CLV.

Or, for a slightly different way of accomplishing a similar effect, check out the Sola Wood Flowers wedding collections page

Source: solawoodflowers.com

At the bottom of the page, the brand includes a Wedding Flower Calculator feature, which allows potential buyers to get a better idea of what to expect in terms of cost (thus improving their overall shopping experience). Plus, it takes a step further and compares that cost to alternative product options. This helps people make buying decisions that are fitted to their budgets and needs.

  1. Promote Long-Term Subscription Plans

Another excellent tactic for encouraging customers to spend more in your store — whether by focusing on increasing AOV or driving repeat purchases — is to offer and promote long-term subscription plans.

A 2018 survey found that offering refill subscriptions resulted in:

  • 65% of consumers choosing a business.
  • 64% becoming return customers.
  • 62% of people preferring brands that offered refill schemes over their competitors.

The reason this CLV-boosting technique works is that it eliminates two of consumers’ main pain points that happen during the online shopping process:

  1. It offers the convenience of not having to think about re-ordering product refills and replacements and delivering them automatically to buyers’ doors at a pre-determined frequency.
  2. It allows loyal customers to save on packaging, shipping, and handling costs, all the while helping ecommerce brands improve their cash flow by (usually) charging for products upfront with a monthly or yearly plan.

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An excellent implementation of this tactic comes from the Philips website, where buyers are encouraged to subscribe for deliveries of replaceable parts. So, an electric toothbrush purchase includes the incentive to also subscribe to quarterly brush head and battery replenishments, pointing out that the additional cost is a mere $5 every three months.

Source: philips.com

The result is a win-win. Customers get the peace of mind that they won’t have to worry about buying new brush heads and batteries every 90 days. And the brand increases the frequency at which people buy its products, effectively boosting its CLV.

  1. Build Stronger Relationships Through Email & Social

Sometimes, the best methods to grow your business are the cheapest ones. 

According to a recent study looking at ecommerce conversion rates, visitors coming from social media channels and email newsletters have a much higher chance of converting into customers than those coming from SERPs. So, if increasing CLV is your goal, it might not be a bad idea to start thinking about building more engaged relationships with your audience.

If you run a weekly/monthly email campaign, make sure that you invite new buyers to subscribe. You can do this by offering incentives, as done by Mannequin Mall, a brand that offers a discount in exchange for web visitors signing up for its newsletter.

Source: mannequinmall.com

Or, if email marketing isn’t something that you’re prepared to commit to, you can build strong relationships with your audience by encouraging them to follow you on social media. (And the great thing is, you don’t have to limit yourself to just Facebook, Instagram, or YouTube.)

Fire Pit Surplus, for example, knows that its target audience is most likely to look for inspiration on Pinterest. So, in addition to inviting web visitors to follow it on the social network, the brand also ensures to use the platform to distribute its blog content. 

The goal here isn’t just to supply Pinterest followers with valuable knowledge. More than that, it’s to get the brand’s target audience to discover the posts, start following the brand, then slowly nurture them into happy and loyal customers.

  1. Employ Cross-Selling and Upselling Techniques

For a more traditional approach to increasing CLV in ecommerce, you can try incorporating cross-selling and upselling strategies in your sales.

In case you’re not entirely sure about the difference, here’s what each of these approaches does.

Cross-selling refers to the practice of encouraging buyers to purchase add-ons when shopping. This can mean anything — from offering an order of fries for just $1 when buying a burger to giving a 20% discount on a protective case when selling smartphones.

There are two benefits to utilizing this approach:

  • On the one hand, the additional product recommended to the buyer is chosen in a way that will ensure a superior user experience and boost satisfaction. 
  • On the other hand, the technique yields a higher average order value and allows the seller to improve CLV without increasing sales frequency (which often comes with additional costs due to order processing, shipping, and other operational expenses).

Upselling, though similar to cross-selling, relies on a slightly different approach. Essentially, it is the practice of encouraging buyers to choose higher-end products by pointing out the added benefits.

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If you check out this post from Rain or Shine Golf, you’ll see that the brand gently steers customers towards the more premium golf simulators, pointing out how they outperform cheaper alternatives.

Of course, when choosing to go with the upselling method, it must be done tastefully instead of just trying to get people to spend their hard-earned money without giving them any extra value in return.

  1. Create a Loyalty Program

Finally, if you’ve tried all the tactics above and are looking for a next-level way to increase CLV in your ecommerce store, now might be time to start developing a loyalty program.

According to some predictions, loyalty programs are going to become more and more influential in building a successful brand. In fact, the loyalty management market is expected to grow from $8.6 billion in 2021 to $18.2 billion by the end of 2026. 

Of course, there are many different ways to create a successful (and user-oriented) loyalty program.

The North Face, for example, does it by offering perks like exclusive gear and dedicated customer service to its XPLR Pass holders, which incentivizes people to choose the brand as their go-to source for all adventure-related purchases.

Source: thenorthface.com

Sephora has a three-tier rewards program where customers get discounts, first dibs, and gifts based on how much they’ve spent, subtly encouraging people to spend more in return for the rewards.

And Starbucks invites customers to use its app for payments, offering freebies and priority service in exchange for earned stars.

Source: starbucks.com

Final Thoughts

Although increasing CLV may not always present itself as the logical strategy for achieving ecommerce growth, it’s definitely one of the better ways of investing in the future of your business. After all, unlike most marketing tactics, it focuses on minimizing marketing costs, building long-term relationships with buyers, and improving cash flow.

However, if you want to make sure you get it absolutely right, don’t forget that having a loyalty program in place, using cross-selling techniques on product pages, and offering subscriptions are just a means to the end. At the core of all these tactics, however, lies a commitment to customer satisfaction and a preparedness to do whatever it takes to deliver the best customer experience in your niche.

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