What critical metrics do you track in your e-commerce business? If customer lifetime value (CLV) is not one of them, then it is high time that you measure and track it.
It is nothing but the total profit you can expect from a customer throughout their relationship with your business.
Understanding the customer's lifetime value will help determine which customers bring more profit. This will also help you spend more on this group of customers than others to ensure that your efforts reach the right customers.
Moreover, it gives you insights into customer engagement tips that work with these customers, which you can then try on similar customers.
What Is Meant By Customer Lifetime Value?
Customer Lifetime Value (CLV) measures the amount your company expects to make from a client for the period he will continue to use its products. CLV helps organisations eschew the short-term mentality and focus on the long-term, perceiving clients as valuable resources.
In simple terms, CLV answers a critical question: How valuable is each individual customer for your business from the long-run perspective?
Knowledge acquired from this information enables firms to make better resource distribution decisions, categorise customers based on their value, and develop merged strategies that lead to customer loyalty.
Customer Lifetime Value Formula
CLV enables e-commerce organisations to determine the overall value of the customer. A commonly used formula for CLV is:
How To Calculate Customer Lifetime Value?
CLV Average Purchase Value X Purchase Frequency X Customer Lifespan
Let's break down these components:
- • Average Purchase Value: The total expenditure of customers divided by the number of purchases they made.
- • Purchase Frequency: The frequency at which a customer purchases at a specific time.
- • Customer Lifespan: How long the average client persists in buying goods from a business establishment.
This formula is one of the basic tensed models for rating customers' CLV, allowing your business to measure the customer's potential worth. It can also be augmented with further details according to the specific leveraging advanced stage that considers acquisition costs, churn rates, and profit margins.
The CLV method assists in making sound business decisions by determining which customers must be retained to attain maximum returns by utilising adequate resources.
Predictive Customer Lifetime Value is an example of a metric that will be in demand during the foreseeable future. It estimates CLV, helping you assess how valuable a customer could be.
TechMonk: The Best Cohort Analysis Tool For E-Commerce
Customer Lifetime Value Models
To dive deeper into understanding CLV, businesses often use two main models:
1. Predictive Customer Lifetime Value
In its simplest form, predictive CLV takes historical customer data and applies it to an analytical model to approximate a given customer's spending in the future. This model uses data metrics and statistical technologies to know how much of an item the customer will likely buy, how often they will buy the item, and how long they will continue using your brand.
Forecasting CLV is a valuable tool for e-commerce companies, enabling you to make future revenue predictions and channel separate marketing campaigns at specific target consumers.
2. Historical Customer Lifetime Value
On the other hand, the historical CLV model treats only past sales data and constructs a value for a customer based on this data only. Unlike behavioural targeting, it does not predict future behaviour to that degree, but it offers a fast evaluation of customer value based on spending.
In the case of growth-oriented approaches, forecast-based models usually provide more helpful information.
What Is Customer Lifetime Value In E-Commerce?
When it comes to e-commerce businesses, customer lifetime value (CLV) is still an important concern. Knowing your customers' CLV helps you understand the customers who make repeat purchases and are profitable, as well as the behaviour of customers who spend more.
You can then use this data to target marketing campaigns to the right customers with similar behaviour, ensuring maximum return on investment.
Let us consider a customer who makes repeated purchases from an e-commerce store. They might not spend a lot on a single purchase, but they keep on coming back to the platform to make frequent purchases. At times, they come back for purchases because they are interested in the offers and incentives given by the e-commerce business.
This customer will have a high CLV as they return for more frequent purchases. By studying this customer's behaviour, the e-commerce business can understand the kind of offers that appeal to similar customers. They can then focus on other customers with attractive offers, improving customer acquisition.
Why Is Customer Lifetime Value Important?
Customer Lifetime Value is critical to e-commerce for increased revenues, better marketing effectiveness, and enhanced customer loyalty. Here's why CLV should be at the forefront of an e-commerce strategy:
1. Improving CLV Brings In More Revenue
That is why a strategic focus on CLV means businesses can generate the maximum revenues from the existing customer base. Critical customer benefits are a habit upon which companies can base their strategies and increase sales without investing in customer acquisition, as in the case of marketing.
2. Helps Improve Data-Driven Decision-Making
Customer cohort analysis and comparison of CLV across various customer cohorts can help you refine your target customers and spend your advertising dollars on customer to bring in customers that will higher a CLV
3. Helps Target Ideal Customers
CLV makes it possible for your businesses to identify affluent customers so that they can adjust their methods of acquiring them. This makes it possible for your e-commerce brand to direct resources towards any customer group that resembles the high CLV clients.
As opposed to a broad, scattergun approach, which may result in insignificant conversion of leads to customers, CLV-focused strategies target those segments of the population that one would like to convert into loyal clients to minimise churn while at the same time maximizing satisfaction among the existing clientele.
4. Improving CLV Helps Cut Down Customer Acquisition Costs
The most significant is that getting new customers always tends to be expensive, especially in specific niches. Hence, CLV helps map out strategies for cutting down the cost of acquisition by focusing on the act of retention.
Since emphasis is placed on the satisfaction, loyalty, and involvement of customers, you can retain customers for longer amounts of time, thus decreasing the amount of resources put into attracting new customers.
5. CLV Trends Help Identify Areas For Improvement
It is useful to analyse the general CLV trends to identify some potential issues with the client. For instance, if an organisation observed that CLV has been declining over time it would be a sign that customer satisfaction and product quality was low.
Understanding the CLV dynamics helps to take preventive actions when it becomes necessary to raise the bar of customer satisfaction or retain customers after changing the product offering's price.
Tips To Improve CLV
Increasing CLV means relationships with customers and improving their experiences with the brand. Here are some proven strategies to increase CLV for e-commerce businesses:
1. Personalise Customer Experience
Today, 71 per cent of customers expect personalisation from businesses. In a heavily competitive market, brands can’t help but ensure personalisation. For the same, your e-commerce business needs a 360-degree view of its customers. It empowers you to approach customers with personalised offers and recommendations.
Ensuring customers have an excellent experience is always one of the best ways to enjoy their repeat business. Times products should be easily accessible to consumers. The product information for consumers should be well stated on your website, and checkout should be as uncomplicated as possible.
2. Start a Loyalty Program
Through sales promotions, you can encourage repeat purchases by customers, giving them a good reason to buy the product again.
One can use points, special offers, and incentives to ensure the customers stay. Despite the fact that they help to increase CLV, they also create a closer association between the customer and the company.
Have you ever considered starting a loyalty program in your e-commerce business to reward loyal customers? If you have but don’t know how, try TechMonk. TechMonk is a single tool that supports e-commerce businesses throughout their journey.
Its Customer data platform gathers customer data from data and intelligence silos, giving you a complete 360-degree customer view. Therefore, it makes your loyalty program more effective as they targets the right customers with personalised rewards.
Boost Customer Lifetime Value With An Exceptional Loyalty Program Built With TechMonk.
3. Simplify the Purchasing Experience
Good purchasing processes can be helpful in places where the customer needs to purchase a product with simplicity. Reduce the time a customer needs to complete a purchase, make one-click purchasing available when possible, and make payment options available and safe.
4. Omnichannel Retention Campaigns on Micro Customer Segments
Retention Campaigns also play a huge role in improving CLV. It lets you engage all your customers and encourage them to make repeat purchases. You can introduce and promote new products with customers, creating pre-order campaigns to retain customers.
Customer Segmentation is important to understand customer behaviour. Only then can you approach your customers with personalised discounts, rewards and nudge along the right journey for them. You can use a tool like TechMonk to perform an RFM segmentation on your customers to identify your high-value customers, customers who need attention, and inactive customers. You can then reach out to each of them with the right engagement strategies.
Omnichannel communication is important in today's world as consumers can choose multiple channels including social media, telephone, email, live chat among others to interact with the company. It's important for you to run omnichannel campaigns to drive the CLV equation.
5. Gather Customer Feedback
Gathering and reacting to feedback is an effective way to prove to the customer that your business cares about their opinion. This can be done through post-purchase surveys or questionnaires, company reviews, or through a few emails from your company.
This is the case because when customers hear what they are saying, chances are high that they will continue engaging your brand. Further, feedback details things that need to be changed or done better in order to improve the quality of experience for customers and, in the end, increase CLV.
Increase Your Customer Lifetime Value With TechMonk
TechMonk brings together all the necessary tools for improving CLV in e-commerce businesses. Here's how we can help you maximise CLV.
- • Retention Campaigns To Boost Repeat Orders: Increase customer lifetime value by running personalised conversational omnichannel retention campaigns tailored to micro-segments created using the customer data platform.
- • Enhance Customer Satisfaction with Instant Support: Drive customer happiness and loyalty through GenAI-powered automated Level 1 support, combined with a robust ticketing system and human agent module for seamless issue resolution.
- • Strengthen Customer Relationships with Engagement Initiatives: Maintain high engagement and brand recall by implementing loyalty programs, collecting reviews, and running surveys to understand and address customer needs effectively.
- • E-commerce Personalisation: TechMonk’s CDP for e-commerce integrates all customer data, creating complete customer visibility. As a result, businesses can personalise customer experience, retain customers, build loyalty, and increase CLV.
- • Precise Customer Segmentation: TechMonk offers the necessary segmentation tools for e-commerce businesses. Now, you can effectively identify the right customers to target in their campaigns with the right offers and deals.
TechMonk is not just a solution for improving CLV. Here are more interesting features to look out for.
- • Journey Orchestration: TechMonk empowers e-commerce businesses to orchestrate customers' journeys triggered by certain events. By giving them personalised offers and follow-ups, the journey builder ensures customers complete purchases.
- • AI Customer Support: Provides uninterrupted support to your customers across different channels using a gen AI bot, ensuring that customer queries are always answered.
Wondering how TechMonk can actually help you improve your CLV? Get on a call with us now!
Turn Cold Leads Into Loyal Customers And Increase LTV With TechMonk
Takeaway
Customer Lifetime Value (CLV) is not only a measure of a certain amount in dollars; it is a tool for determining the future of e-commerce businesses. Thus, using the CLV strategy, companies will be able to achieve long-term growth, work solely with the best customers, and simultaneously build the most stable revenue model.
There is always great potential to grow CLV and encourage customer loyalty with strategies ranging from enhancing the customer experience and developing loyalty programs to optimising the customer's buying cycle and path.
FAQs
What is a good CLV?
How is Customer Lifetime Value calculated?
Why is focusing on CLV important for e-commerce businesses?
