How Ecommerce Business Can Increase Customer Lifetime Value?

Every ecommerce entrepreneur’s #1 goal is obtaining new clients. However, many of them fail to leverage one of their most important metrics for long-lasting success. We’re talking about Customer Lifetime Value, or CLV, as it relates to the ecommerce business.

Customer Lifetime Value, or CLV, as it relates to the ecommerce business

Customer loyalty, retention, and repeat business are one of the keys to ecommerce growth, as every online retailer knows. Getting new customers is just the first step. The real work, and the real rewards, come with creating a strong community. If you want to truly take your site to the next level, you need to take this strategy into account.

Keep reading as we detail:

  •  What is CLV
  •  How to calculate the lifetime value of ecommerce customers
  • How to increase customer lifetime value for your ecommerce business

Got your calculator ready? Just kidding. Let’s start.

As we said, knowing calculating the lifetime value of your ecommerce customers is useful for your ecommerce business. If you have this data, you’ll be able to create more effective marketing campaigns and, ultimately, build a more profitable business.

How to Calculate the Lifetime Value of Ecommerce Customers

Boiled down, CLV is a metric of how much an individual client is likely to spend at an individual store, across the entirety of their relationship. Of course, it’s impossible to judge precisely how long a business relationship will be, so it’s generally calculated based on a 12-month average.

Here’s a handy formula to calculate the CLV of your ecommerce customers:


Here’s a handy formula to calculate the CLV of your ecommerce customers
 

Understanding CLV is Vital to Online Business

A survey conducted by Econsultancy with 1,000 online store owners reports that over 60% do not use ecommerce ltv calculation as a factor in their marketing efforts.

Understanding CLV is Vital to Online Business

Calculating CLV can be difficult, but it’s time well spent. It helps you allocate resources more effectively, as well as helping in budget forecasting for marketing, advertising, and customer acquisition.

Putting in the effort will help you determine which clients segments are your most profitable. You can then leverage this by creating special benefits or perks, and developing targeted customer retention strategies. That’s the next level after just selling goods or services.

How to Increase CLV for an Ecommerce Business

Here are some concrete, proven techniques to improve customer lifetime value in your ecommerce business. Use these tips to encourage your customers to spend more time on your site, return to your site, and ultimately, spend more money on your site.

Techniques like bulk purchasing and premium-priced items are shown to increase the per-customer profit in nearly every case.

Also read: The Benefits of Magento Custom Module Development

Boost Smaller Orders with Cashback Rewards

A special offer is like candy to an online shopper. A well-constructed deal will cause them to buy more than ever.

You can always run sales and special discounts, but cashback rewards are often an even better idea. Giving customers a reason to keep coming back will ensure that they keep spending.

Tiered Discounts

It’s an unfortunate truth that clients don’t buy more products just because you ask them. You need to make them an offer.

An offer they can’t refuse.

One of the best things you can do to increase customer lifetime value for ecommerce business is offer a special discount based on their cart total. Shoppers are savvy and want to save money. They’re happy to play the “long game” and spend more now to save later.

Here’s an example of tiered discounts that works well.

  • 10% off a $100 order
  • 20% of a $200 order
  • 30% off a $300 order

After you implement this scheme, you’ll notice that most clients will happily spend up to the 10% discount tier. A smaller but still significant group will keep adding items to their cart until they hit the 20% discount.

And finally, a small, select clientele will spend $300 to unlock the 30% discount.

At all three tiers, you’ll see better conversions, bigger sales, and happier clients.


Understanding CLV is Vital to Online Business 2

Also read: How Much Does It Cost to Build an Ecommerce Website?

There are two things you should keep in mind when implementing this strategy:

  •  Don’t lose sight of your margins. If necessary, exclude specific items from the deal. This lets you ensure you don’t sell your low-margin products at a loss.
  •   Carefully consider the minimum order value for each discount tier. Don’t forget that your total order value will, of course, be reduced by the amount of the discount. That $100 order is only worth $90 if it earns a 10% discount.

Encourage Shoppers with Free Products

This is another great strategy to increase your order totals. When shoppers place an order above a certain value, offer them a free gift.

Here are a few ideas for gifts most customers enjoy:

  • A sample or trial size of one of your most popular products
  • Items you’ve overstocked
  • Seasonal itemed themed around holidays

You can also bundle the free gift into high-value SKUs. Instead of offering a gift when a shopper spends $100 or more, you could instead offer them the opportunity to buy an additional item with the gift included.

Free Shipping Improve customer lifetime value for your ecommerce business

Free shipping is a tried and true method to increase sales and customer retention. It works for two reasons.

  • Customers would rather spend more money on products than on shipping fees.
  • Free shipping minimizes shopping cart abandonment.

A recent study from Deloitte showed that about 40% of online shoppers are more likely to buy from an online store if it offers free shipping. The report also notes that the absence of a free shipping offer is a major cause of cart abandonment.

Also read: Top 9 Essential Features for Custom E-Commerce Websites

 Wharton University conducted a similar study that showed about 52% of shopping cart abandonments are due to shipping and handling costs. 58% of online shoppers surveyed said they abandoned their carts because the total was more than they expected.


 Wharton University conducted a similar study that showed about 52% of shopping cart abandonments are due to shipping and handling costs

How to Upsell and Cross-Sell Products for Ecommerce

Cross-selling is better known as checkout recommendations. Did you know that one-third of Amazon’s revenue comes from cross-selling on their website and by e-mail?

Amazon and many other ecommerce brands rely on strategic upsells based on customers’ shopping carts. If done correctly, the technique is a win-win for customers and retailers.

Here are 8 powerful psychological tricks to encourage clients to spend more.

  • Compound Value – Bundle together related products. If you can show the value of the items together, clients will be happy to buy the set.
  • Convenience – Offer a free email newsletter for customers to receive information about new products and deals. This is a very simple technique that yields great gains in CLV.
  • Incentives -  Use this technique to encourage customers to spend more, receiving marginal savings in return.
  • Paradox of Choice – Essentially, your goal is to limit the shopper’s purchasing options. By doing this, you can streamline their attention, ease the decision making process, and speed up the customer journey.
  • Prestige, Self-Presentation, and Ego-Bait – If you offer premium, high-value products, keep in mind that your customers will take pride in owning them.
  • Reciprocation – Giving free products to your online customers will quickly pay for itself, as they will feel encouraged to buy more products in thanks.
  • Urgency and Scarcity – Scare items, meaning items that are low in stock, typically sell better. You can leverage this by always telling your clients that some products are almost sold out, or that you will only sell them for a limited time. This is the power of impulse buying.
  • Social Proof – Showcase positive reviews from your clients. This will help new visitors place their trust (and their money!) in your company.  

Finally, you can enjoy a sales boost by bundling together complementary products. This works in many industries where the individual products may not be of interest to online shoppers. A bundle creates a greater perceived value, making visitors more likely to buy.

Here’s another great technique to increase your customer lifetime value metrics.

Also read: How to Create an E-Commerce Store with Shopify

Offer Bulk Discounts on Your Ecommerce Website

You don’t need to be a professional marketer to understand that if a product sells, then the buyer must see its value.

If you want to reap the full benefit from that truth and to  increase ltv for an ecommerce business, then you need to offer bulk discounts. In other words, give clients a discount by purchasing two or more of the same product.

Customers instinctively understand that they can save more by buying in bulk, and you will get sales.

Offer Financing of Expensive Items

Online retailers who offer high-ticket items can use this nudge along hesitant shoppers. If a potential buyer isn’t quite ready to lay down the cash, then order financing may sway them. This allows customers to easily and painlessly buy what they need.

The Importance of Customer Lifetime Value

Understanding csv is useful for ecommerce businesses and making it a strategic priority will help you scale your website. Modern marketing techniques are based not just on traffic and immediate sales, but on driving repeat, long-term business relationships.

Of course, not every store has the technical capability to offer special deals, bulk pricing, and other advanced techniques. If you’re feeling behind the times with your Magento, Shopify, or WooCommerce site, the Dinarys team would be happy to add all the custom features you’ll need.

Just fill out the form, and we’ll be in touch. We’ll even give you a free bug analysis.

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