{"id":668,"date":"2017-06-01T05:00:23","date_gmt":"2017-06-01T05:00:23","guid":{"rendered":"https:\/\/web_staging_fern.staging.cartstack.com\/blog\/?p=668"},"modified":"2020-11-11T20:51:43","modified_gmt":"2020-11-11T20:51:43","slug":"cement-customer-loyalty-maximize-customer-lifetime-value-ecommerce","status":"publish","type":"post","link":"https:\/\/www.cartstack.com\/blog\/cement-customer-loyalty-maximize-customer-lifetime-value-ecommerce\/","title":{"rendered":"5 Ways to Maximize Customer Lifetime Value in Ecommerce"},"content":{"rendered":"

You\u2019ve probably heard the statement, \u201cAcquisition costs more than retention\u201d applied to ecommerce\u2014which is basically just jargon for the idea that it costs more money to bring in new customers than it costs to keep current customers happy, loyal and purchasing.<\/p>\n

So let\u2019s just focus on those repeat customers for a few moments to discuss a concept that still confuses many folks in ecommerce: \u201cCustomer Lifetime Value\u201d or CLV. If you use CLV, you can actually distill<\/span> what you know about your regular customers into a number that will give you a concrete idea of how much your relationship as an ecommerce business with any of your customers means financially.<\/p>\n

Oddly enough, an econslutancy.com study<\/a> found that less than half of ecommerce businesses actually bother to calculate or apply Customer Lifetime Value to their marketing plans\u2014although, on average, 20 percent of your customers (regular, loyal ones) can account for up to 80 percent of your revenue. Maybe it\u2019s because the word \u201ccalculate\u201d scares people off.<\/p>\n

You can\u2019t afford to let that be a concern, particularly as the same study found that the likelihood of selling to an established customer runs between 60-70 percent while the likelihood of selling to a new customer runs between 5-20 percent. And globally, just one<\/em> customer lost can account for a loss of $243, and that\u2019s not a number you want to multiply.<\/p>\n

Besides, it’s not that hard to calculate CLV.<\/p>\n

Calculating Customer Lifetime Value isn\u2019t as Difficult as You Might Think<\/h2>\n

There are several online tools and even some simple scratch paper equations you can use to calculate CLV. We present two tools here that can get you started, but there are many others too.<\/p>\n

The Simple CLV Calculation:<\/h3>\n

Brad Sugars, founder and chairman of the company ActionCOACH<\/span>, shared his simple formula in this helpful Entrepreneur article<\/a>:<\/p>\n

(a. Value of the average sale) x (b. Number of a customer\u2019s repeat purchases) x (c. Average number of months\/years a typical customer stays with you) = CLV<\/p>\n

So if your average customer spends $40 each month for 5 years, then your CLV would be:<\/p>\n

40 x 12 (months) x 5 (years) = $2,400 CLV. Break that down into a yearly average by just multiplying the average monthly purchase amount by 12 months and you get $480 per year from the average customer.<\/p>\n

The Harvard Business Review CLV Calculator:<\/h3>\n

The Harvard Business Review actually has an online CLV calculator<\/a>. Just plug in the numbers and it gives you even more data you can use to project how much your loyal customers mean to you and how much you should invest to keep them and maximize what they\u2019re willing to spend over time.<\/p>\n

But What Can You Do<\/em> with CLV?<\/h2>\n

CLV empowers you to use your marketing budget more effectively. Instead of spending blindly on every new marketing scheme, you\u2019ll have a precise number in your budget that you can work with. Now that you know how much that loyal customer is worth, you can invest a portion of that CLV amount in creating programs, campaigns, discounts, etc. that speak to your regular customers in a way that entices them to spend a little more, a little more frequently. You\u2019ll also have an idea of what you should budget to bring in new customers and turn them into regulars\u2014because you need newbies<\/span> also!<\/p>\n

5 Proven Ways to Boost Customer Lifetime Value<\/h2>\n

The relationship you build with your customers is paramount. Greg Wise at Blogspot<\/span> shared some data-based strategies<\/a> that work to keep customers happy and loyal over time that all ecommerce businesses would do well to pay attention to:<\/p>\n

1. Improve Customer Service<\/h2>\n

Every experience your customer has with you should be delightful<\/em>\u2014from the quality of your product or service, to how well it solves their pain points, to how easy it is to use your website, to how easy it is to get a real human being<\/em> on the phone, to special discounts, and, last but definitely not least\u2014how you fix problems when they arise<\/em>.<\/p>\n

An American Express survey discussed in this Business Insider article<\/a> noted that 78 percent of customers failed to complete a planned<\/em> transaction because of a bad experience with customer service. Furthermore, Those unhappy customers are more likely to share unhappy reviews that negatively impact potential customers. In fact, it takes up to 12 positive online reviews to make up for just one bad review from an unhappy customer.<\/p>\n

Even more alarming, for every unhappy customer you know<\/em> about, there are 26 other unhappy customers who stew about their experience without ever letting you know\u2014while they tell all their friends about it.<\/p>\n

On the other hand, truly delighted customers are likely to tell, on average, about nine of their friends.<\/p>\n

Add that to the fact that if, at the very moment you find out a customer has had a less than delightful experience, you act, immediately and wholeheartedly<\/em> (with compensation and a very personal apology) to make it right for that customer, you can boost customer satisfaction by nearly 75 percent! In fact, the same American Express survey found that 73 percent of people are willing to pay more for good customer service in general.<\/p>\n

Look at customer service as another opportunity to delight your customer. Solve their problem with over-the-top (delightful) service. These customers may go on to become some of your biggest fans in terms of CLV.<\/p>\n

2. Love Your Data<\/h2>\n

Create and tabulate surveys, organize customer focus groups and allow them to share in some usability testing activities. A\/B testing is always useful to find out which of your products, services and marketing efforts are effective and which ones can be improved or eliminated in favor of a better solution. Constantly gather and churn through the data to understand your customers better so you can personalize your interactions with them to boost CLV.<\/p>\n

3. Personalize Interactions<\/h2>\n

Your customers aren\u2019t na\u00efve\u2014slap-dash efforts to personalize interactions with them won\u2019t work and may turn them off. If a customer bought baby clothes 6 years ago and still gets offers for more baby items when their child is in first grade, that’s a turn off. Again\u2014go to the data and think<\/em>. And listen<\/em> to your customers needs now<\/em>.<\/p>\n

Think about Amazon, for example. No two people in the world see the exact same Amazon home page. What you see corresponds directly to recent purchases or product views. If you purchase a box set of the Harry Potter books, they may suggest getting the moves to go along with it. Or, if they can tell from your purchasing history that you\u2019re a reader, they might suggest trying out the Percy Jackson book series to get you over that difficult post-Harry Potter reading hangover.<\/p>\n

Some other ways to personalize all of your interactions include:<\/p>\n

Send email marketing from a human being within your company, with a real name of a contact your customer can chat with if necessary. Use the customer\u2019s real name and respond personally if they write back.<\/p>\n

Note:<\/em> Be careful with the level automation you use. You don\u2019t want a customer who bought a shirt that doesn\u2019t fit to keep getting emails (even with her name on them) about advice on how accessorize it.<\/p>\n

Use social media as another touch point to interact with your customers personally. Respond anytime they leave a post and get to know them better that way. Invite them to participate in trials, surveys and focus groups. The more interaction you have, the more data you can gather and the more you\u2019ll be able to personalize your offerings. You can also use this information to create customer personas for enhanced personalization (more on that below).<\/p>\n

4. Cross-Selling and Upselling<\/span><\/h2>\n

First, it\u2019s important to understand the difference between cross-selling and upselling<\/span>:<\/p>\n

Upselling\u2014Encouraging the purchase of an additional product to complement the one the customer is already purchasing. If the customer is buying a digital camera, you\u2019d suggest getting an extra battery, charger or memory card. Those are all things necessary to use the camera. You can also upsell<\/span> to a better, more expensive digital camera with cooler features than the one the customer was looking at.<\/p>\n

Cross-Selling\u2014Encouraging the purchase of an item tangentially related to the original product. For example: your customer is buying a shirt and you suggest completing the outfit with a matching scarf.<\/p>\n

Another Econsultancy<\/span> study<\/a> found that upselling<\/span> is 20 times more effective than cross selling. If the additional product is featured as necessary addition to the original, the customer will be more willing to add that to the cart if the price is right.<\/p>\n

Use your data and don’t<\/em> be that website that tries to cross-sell only vaguely relevant items\u2014like when someone\u2019s looking for a hammock and they get suggestions for tents. That’s a turn off. The key for successful upselling<\/span> and cross-selling is how precisely relevant the other item you\u2019re trying to add on really is for the customer at that very moment. Some effective ways to do this include:<\/p>\n