4 Best Strategies for Increasing the Lifetime Value of Your Ecommerce Customers

Written by
Published on
March 18, 2016

The most successful and fastest growing ecommerce companies have one thing in common, a higher customer lifetime value than their competition. Customer lifetime value is the estimated total of how much each customer will spend over the lifetime of their relationship with your store. Having a healthy Repeat Customer Rate is the first step in improving the Lifetime Value of your customers.

Why Lifetime Value is Important

Ecommerce companies with higher lifetime value rates will enjoy higher profit margins for a number of reasons:

  • Increasing customer retention rates by 5% increases profitability by 25% to 95%.
  • The cost of marketing to existing customers is about 7 dollars per customer while marketing cost per new customer averages 34 dollars.
  • The probability of selling to an existing customer is 60-70% versus the likelihood of selling to a new prospect, which is 5-20%.
  • A study of online shopping habits found a shopper’s fifth purchase at the same store was 40% larger than the first, and the 10th purchase was 80% larger than the first.
  • Businesses with 40% repeat customers generated nearly 50% more revenue than similar businesses with 10% repeat customer base.

How to Increase Lifetime Value

Now that you can see how increasing customer lifetime value has a dramatic impact on your bottom line, consider the following strategies that will give that number a boost.

1. Personalized campaigns

Email campaigns to new and loyal buyers are proven to increase repeat purchases. According to Custora, the customer lifetime value of shoppers acquired through email is 12% higher than average. It’s important to segment your customers for a personalized email strategy. For example, you may want to send first time buyers a welcome or thank you email, perhaps adding a coupon or special offer. This welcome email from Zappos targets first time buyers who also created a customer account while checking out.

How to Increase Lifetime Value
How to Increase Lifetime Value

If a shopper has purchased from you once, but hasn’t been back for a while, use a win- back campaign to get them to return. In the subject line, start with a little reminder such as “We’ve missed you” or “Where have you gone? In your email, incorporate pictures and links to hot selling products or recommend items based on the customer’s past purchases.

2. Customer Service

According to Zendesk, 72% of shoppers rank good customer service as the biggest driver of loyalty and repeat buying. Conversely, damaging the customer experience will contribute to driving customers away for good. Ecommerce stores should have a multichannel approach to customer service that includes email, phone and live chat. Social media is an increasingly popular customer service channel. 30% of top brands now have a Twitter feed dedicated to responding to customer inquiries.

How to Increase Lifetime Value

3. Upsell and Cross Sell

Ecommerce businesses need good customer data to uncover ideal cross sell and upsell opportunities. Based on historical data, you can make relevant and targeted recommendations that encourage shoppers to add on or upgrade. Personalized product recommendations lead to loyal customers who connect with brands that provide a unique shopping experience. Amazon is a leader in this space with intuitive recommendations based on both purchase and browsing behavior. Advanced ecommerce tools are making it easier for companies large and small to do the same.

4. Loyalty Programs

Loyalty programs offer the advantage of aligning your business toward the most profitable segment of your customer base, repeat shoppers. There are generally three types of loyalty programs:

  • Rewards for number of purchases such as a point program with a free item or discount once a certain number is reached.
  • Rewards for total spending which encourages customers to spend more, whether it’s a single purchase or over time.
  • Paid upfront rewards program such as Amazon Prime, where 99 dollars up front gives you unlimited two-day free shipping and other benefits for a year.

Don’t implement a loyalty program unless you have a way to measure its success. With a successful loyalty program, you should see an increase in repeat vs. new customers. If repeat customer percentages are growing, this indicates your loyalty program is adding value. You can also consider segmenting program and non-program members to determine the overall effectiveness of your loyalty initiative.

Final Note

We hope these ideas kickstart your efforts to increase customer lifetime value. Just remember, measuring lifetime value is the only way to know whether your activities are paying off. Ecommerce reporting tools like Glew make it easy for shop owners to analyze performance and find new opportunities for success.

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