3 Strategies For Optimizing Customer Lifetime Value

Your customers are not all the same.

There’s a world of difference between your very best customers and just your average customers. Check this out, we analyzed the data of our hundreds of ecommerce clients and found that top customers spend 5 times more per order than average customers.

They also buy more frequently. Making 4x more purchases than average.

All things combined and the top 1% of your customers are worth 30 times more than your average customers. This should impact every aspect of the way you do business. Your customers are not all the same, and you shouldn’t acquire, service, or market to them as if they were.

Optimize Customer Lifetime Value

Customer lifetime value measures the profit your business makes from any given customer. It’s a calculation of the total revenue earned from a customer, subtracting out the money you spent acquiring and serving them. If you want to increase revenue you want to increase the lifetime value of your customers.

Marketers have three key levers to pull to optimize the customer lifetime value of their customers.

1. Get more of your best customers


2. Boost average order value


3. Increase your repeat purchase rate.

Pulling any of these levers will result in improved customer lifetime value and increases in revenue.

Find more of your best customers

Acquisition efforts tend to focus on getting the highest amount of customers at the lowest possible price. This is great for getting average (or below average customers). However, if you want to get more of your best customers you’ll need to take a slightly different approach.

1. Find the marketing channels bringing in your best customers: It’s deceptively easy to calculate ROI based on first purchase, problem is that it will keep you in the dark about where your best customers are coming from.

Calculating ROI using customer lifetime value instead of first purchase will point you to the channels that are bringing in the kind of customers that purchase more and purchase more often. ROI shapes the way you allocate your budget, make sure you’re doing it right.

2. Identify common characteristics of high lifetime value customers: It could be that your top customers have acquisition source in common, or it could be something else. To find these characteristics you’ll have to abide by the golden rule of analytics – segment, segment, segment.

By creating a segment for high lifetime value customers you’ll be able to spot what they have in common – maybe they purchase from a certain product category, maybe they’re located in a similar geographic area, maybe they always write reviews. Study the characteristics of your very best customers and always be on the lookout for ways to use what you know about them to create more of them.

Boost the average order value

Remember that your best customers spend 5x more per order than average customers. Why? The previous section should give you some ideas on what gets your best customers spending, but there are two quick wins in this area.

1. Implement customer reviews: Customer reviews create a 74% increase in product page conversion, still over 25% of the IR500 are not using them! Customer reviews are a fast and easy way to help customers feel confident about their purchase.

The ModCloth example below is especially good. Not only does the item have 50 reviews, they add an additional layer of social proof by showing the number of customers who have said they love the product.

2. Offer free shipping: Online shoppers love free shipping. And with three out of four shoppers admitting to adding to their carts to qualify for free shipping, retailers share that love. That said, we’re not advocating that you just give it away. Shipping costs will sneak up on you and can quickly erode your profit margins. Offer free shipping, but do it strategically.

Just because other stores like you offer free shipping for orders over $50, doesn’t necessarily mean that’s what you should be offering the same. Test pricing strategies rigorously to find a place that will be beneficial for both you and your customers.

Increase the number of repeat purchases

Repeat revenue is preferable to revenue from new customers, hands down. Existing customers are simply cheaper to market to. Once you paid for a good customer, don’t let them get away.

1. Repeat purchase probability: This kind of analysis can show you where (and why) customers are dropping off. It can also uncover at what point customers become “sticky.” Find that point of stickiness and you have a signpost marking a customer has left the land of average and entered the land of high customer lifetime value.

2. Churn analysis: Some churn is inevitable, but don’t assume that all of it is completely unavoidable. Things like website difficulties or shipping delays can cause surges in churn. If you find that this was the case for you then offer a sincere apology – it can go a long way in regaining customer trust. Here’s a great example from Overnight Prints:

3. Email marketing: There’s a reason email marketing is a staple in the ecommerce toolbox – it works. The example from GrubHub is particularly good. They offered a (small) discount, but more importantly, they combined their offer with something that I like, the TV show Girls. These types of co-promotions are a bit more work than just giving a big-fat-50-percent-off, they’re also better at appealing to the customers that love you instead of the customers that only love a discount.

Your Customers Are Not All Created Equal

The top 1% of your customers spends as much as the bottom 50% combined, don’t make the mistake of treating all of your customers the same – because they’re not. Find the customers with the highest lifetime value, learn about them, make more of them, find out what they love about you so can re-create that loyalty among other customers.

via Business 2 Community http://ift.tt/1pRZkXx