You have heard about Customer Lifetime Value and you know it is very important and companies who will increase LTV will significantly increase the bottom line. The customers are gained & lost over the lifetime of a company, however, a great product and service will keep the customers rightly fed, still hungry to get more. Such appetite is what adds a little value to your company throughout the relationship with your customers that you can measure with unit economics.
So, how can companies calculate the customer lifetime value?
Firstly, calculate lifetime value just by multiplying the average value of the sale, an average number of the transactions as well as the average customer retention time.
Average Sale Value × Transactions × Retention Period = Lifetime Value
As the lifetime value of the customer can be calculated in the gross revenue terms, this doesn’t take operating costs into consideration. How much does it cost in making this product, market, as well as manage operations? Take the operating costs into account while calculating the customer lifetime value.
Why’s CLV Very Important For eCommerce?
LTV is highly important than most eCommerce store owners can realize. Let us know why:
LTV decides if you may scale
Normally speaking, the Customer Lifetime Value must be 3 times higher than the Customer Acquisition Cost. Thus, if you are spending around $100 on marketing to get the new customer, then that customer must have an LTV of $300. Suppose it is not somewhere in the 3:1 ballpark, then your profit margin will not be very high to scale the business.
Keep in mind, your LTV needs to cover all expenses that are associated with every customer. It includes marketing, customer service, shipping, specific technology that you use, and more.
Improving the Customer Lifetime Value
As you know the customer lifetime value, is there any way you can improve it? Let us look at some strategies that will help you out.
Highly Effective Communication
Open communication between your customer and company strengthens your relationship with the customers as well as makes your company feel human. In the current environment, it is very important to react to the feedback, particularly negative comments or poor ratings. The customers appreciate it when the voices are heard. An easy acknowledgment that the company is a bit receptive to the feedback and problems can be addressed and catalyst for the repeat business.
Improving the effectiveness of customer communication applies to the sales & marketing copy. You will measure the performance of the communication with the customers just by assessing the churn rate & ad conversion rate.
Optimize the onboarding process.
Customer onboarding is the first interaction that your audience will have with the brand after they choose to become their customers. It is the first chance that you need to impress them. Thus unless you wish to lose the customers in the first week, you have to optimize the onboarding procedure to make the customers get familiars with the products or services.