The Importance of Understanding Customer Lifetime Value for eCommerce Stores
If there’s any metric that you need to know, it’s customer lifetime value. Knowing this number allows you to determine an acceptable amount of money to spend to acquire a customer (CPA), and so much more.
Metrics like conversion rates and visitors don’t mean anything until you know how it affects your revenue. This is especially true if you run an e-commerce store.
Recent statistics show that global ecommerce sales will reach $4.5 trillion by 2021 – and Aussies are already top ten competitors
Using lifetime value (LTV) to allocate a marketing budget
When you know how much a customer is worth, you can determine which audience to focus on.
For example, if you know that your LTV for customers acquired through your social media marketing efforts is $1200, while your LTV for customers acquired through cold calling is $400, it’s definitely worth moving resources from the phones over to social media marketing.
By knowing your LTV for each type of client, you can concentrate your efforts into acquiring the customers who matter most.
How do you calculate customer lifetime value?
Too many small business owners make the mistake of equating the value of a customer’s first order with their lifetime value.
In reality, one customer might return multiple times or even refer your brand to another person.
To accurately determine their lifetime value, you need to take into consideration any purchase they make in the future and the number of referrals they bring you.
For example, a customer that pays $100 for their first order and comes back every month for another $20 order, will have a lifetime value of $320 if they stay with you for a year and don’t refer anyone else to you.
If they stay with you for a year and introduce another person to your brand who ends up becoming a loyal customer as well — your initial customer has a lifetime value of $640.
In terms of customer acquisition costs, you could pay up to $640 to acquire the first customer and not be at a loss.
All Ecommerce Store Owners MUST Do This
Your job as an ecommerce store owner is to know what you are all about. If someone asks you what you do and why you’re good at it, you should be able to tell them in a couple of statements about what you do and what your strengths are.
You want your company to stand out from the others. Have a clear mission in place so that your customers know what you stand for and have a website that is filled with SEO (Search Engine Optimization) keywords. This will make sure that people can find you in the search engines easily.
Your Website Needs To Be The Best
You may want to level up your online store. One of the solutions is a website. Having a great website is imperative for your online presence. You also want to be clear on the products and services that you are offering. This makes a difference in how you will conduct business online. Statements that are true and concise make it easier for customers to understand.
A great call of action is needed so that your customers have a clear way of purchasing from you. This needs to be fail-proof and all of your links must be in working order on your website. Any image must be in full-color and detailed to give the ultimate impact and a good return for your advertising budget.
How Can You Increase Your Customers’ LTV?
The easiest way to increase the profitability of your company is to increase the lifetime value of each customer.
There are multiple ways that you can increase LTV, keep your current customer base, and still add more customers to it. When you do this, you keep your share of the market while slowly growing.
E-reatiler analysts at Max Funding say, “it’s a common mistake for small business owners to chase new business and neglect their already won customers. You should always treat your customer like you’re trying to win them for the first time. Keeping them will be much more cost-effective than gaining a new customer.”
Here are three ways that you can make sure that you improve constantly with your e-commerce store and your marketing strategies so that you can have the best outcomes:
- Customer Service – Fantastic customer service is what you want to offer at all times.Any questions that your customers have should be answered with quick and efficient answers. Your customer service should always be professional and the customers should always be treated with respect. By offering live phone calls, chat, email, and social media customer service, you will be there for your customers when they need help. Your store will be conducting business around the clock and people will need the ability to have their questions answered at any given time. Having questions and answers section on your website is mandatory. This will give your customers a place to search for their own answers if they wish to.
- Email Preferences – A great email campaign is a must.You can target your customer markets in a fantastic way with emails. Having customers in different segments is helpful. You can also send out coupons and discounts in this manner that will allure repeat business and acquire new business too. Having a newsletter is also a way to reach out to your customers on a continuous basis. Have a free newsletter that is attractive as well as engaging so your customers will want to buy more from you at all times.
- Loyalty Programs – Having a rewards program is also another awesome way to make your customers happy.They will feel important knowing that they will be rewarded when they shop with you. You want your rewards to be something special that will please your customers. This will reinforce their loyalty to you and they will likely recommend your company to other people that they know. Referral business is a large part of any marketing campaign and you want to get as many referrals as you can.
You will always want to work on increasing your online presence, building your brand, and increasing your customer’s LTV.
But the work you put into increasing LTV pays in multiples when compared to other strategies of increasing profits. Later, you’ll be able to add even more new inventory and continue to increase your customer LTV. If you work on your online presence and increase brand loyalty, your customers will keep coming back for more.
Improving your business takes a lot of effort but it pays off in the long run. You will see your profits increase tremendously when you start thinking about each customer and their lifetime value. As you continue to run your business, always update your website continuously.
You want to always be proactive and not reactive. Be on top of everything and your future should go smoothly. Nothing takes the place of hard work and it will show.