Customer lifetime value (CLTV) is an important indicator of the health of your ecommerce business.
Itās aĀ long-view of theĀ amount ofĀ revenue a customer will bring, smoothing out buying patterns and seasonal variations.
When you knowĀ whichĀ customers createĀ the mostĀ valueĀ for your business you can expand yourĀ understandingĀ ofĀ strategy,Ā marketing,Ā sales,Ā user experience (UX),Ā productĀ preferences, customer service,Ā andĀ management decision-making.Ā With this knowledge you can anticipate trends and plan improvements to your productsĀ and services andĀ enhanceĀ yourĀ overall business modelĀ for growth.Ā
Increasing CLTV leads to higher profits
While the likelihood of selling to a new customer is 5% toĀ 20%,Ā the probability of selling to an existing customerĀ is 60% toĀ 70%.Ā So, when you focus onĀ returning customersĀ you will achieve much more for less effort.Ā
When you use what you know about your customersāĀ behaviorĀ effectively youĀ will build the foundations ofĀ long-term relationships.Ā
Here are some steps you can take to encourage your customers to increase their CLTV and your profitability.
Engagement
Some traditional techniques are still the best ways to retain your customersā interest.Ā RegularĀ digital or printedĀ newslettersĀ and emails, for example,Ā maintain awareness of your brand.Ā Ā
Because your customers have already bought from you, you have valuable information about their preferences, which will allow you toĀ personalize the content and offersĀ you send to them. You will have a much better chance of success, because you are usingĀ reliable and accurateĀ information about each of them.Ā
The important thing is to let your customers know that you appreciate their business and that you have taken the time toĀ createĀ contentĀ that will be valuableĀ and interestingĀ to them.Ā
When you are working with a large group of customers you can test your approach with alternative subject lines, introductions, offers and frequencies to see which generateĀ the best conversion rates.Ā
Because you are looking at your customersā complete lifetime,Ā you will need to be aware thatĀ their responses will vary, depending on whetherĀ they have been a customer for a month orĀ two years. Your engagement with them should keep pace with their changing needs,Ā so donāt treat everyone in the same way.
Use multiple channels
Itās worth spreading your engagement across multiple channels to make the most of your opportunities.Ā
A simple and cost-effective way to explore the multi-channel potential of your customers isĀ toĀ includeĀ links toĀ your ownĀ channels on your website and in your newsletters. Track the click through rates (CTR) and experiment with offers and invitations that will help people to feel that they are part of your community.Ā
Tailor your business model
An effective option to increase CLTV is to transform your product or service into aĀ subscription. Your customers no longer need to think about makingĀ individualĀ purchases and you will become their reliable service provider.Ā
You willĀ gainĀ aĀ regularĀ recurring revenue streamĀ and your customersĀ are likely toĀ pay more,Ā stay forĀ longer, and becomeĀ moreĀ valuableĀ to your business.Ā
Offer other purchase options
When youĀ areĀ engagedĀ withĀ your customers, you will build trust and confidence. Then you canĀ make recommendationsĀ for other purchases they might like to make, based on their buying history.Ā Ā
For regular customers you can send reminders and tell them what other people buy with their preferred products. You could even offer them a reward for referring someone else to buy your product or service.Ā
A carefully planned approach toĀ cross-selling and upsellingĀ that adds value for your customer can significantly increase their CLTV.Ā Ā
Customer service
It is worth investing in aĀ customer retention strategyĀ toĀ increase each customerās overall lifetime value to your business. We know that existing customers are more likely to buy from you thanĀ new customers, and it also costs much less to sell toĀ them.Ā
For example,Ā Disney ParksāĀ 70% return rateĀ is achieved through a commitment to customer experience.Ā The approach is simple; whenĀ people enjoy their visit, theyāll come back for more.Ā Importantly,Ā customersĀ are alsoĀ happy to spend moreĀ with organizations that deliver excellent customer service.Ā
There are some simple steps you can take to improveĀ customer service, including:Ā
- Making a commitment to quality over quantityĀ
- Providing positive and proactive responses to requests, questions, and complaintsĀ
- Delivering value-added content and servicesĀ
- Giving expert advice freely Ā
- Introduce a VIP or loyalty programĀ
- Listening to customer feedback and letting them know you have taken it into account.Ā
Customers that receive good service will tell others and become ambassadors for your brand. They are also more likely to buy from you again to receive that same high standard of service, so their lifetime value will increase.Ā
Customer information
The key to building long-term relationships that will increase CLTV isĀ accurate and reliable data.Ā Ā
When youĀ integrate your business systemsĀ you can collect and interrogate data and turn it into insights about your most loyal customers.Ā Understanding theirĀ behaviorĀ and preferences is the key to extending theirĀ lifetime value, attracting other similarly valuableĀ customers, increasing yourĀ profitability,Ā and buildingĀ your brand.Ā
To find out more aboutĀ harnessing the power of your customer dataĀ to increase lifetime value,Ā speak with one of our experts.Ā