Did you know that it can cost up to 7x more to acquire a new customer than to keep a current one? That alone should be motivation for you to pay attention and have a retention strategy in place. The more you engage and build loyalty with your current customer base, the more profitable your E-Commerce business will be in the long-term. Acquiring customers is important, do not get me wrong, but it is a mistake to focus solely on the acquisition and not retention!
What is customer lifetime value (CLV) and why is it even important? To break it down, CLV is just an equation that tells you the profit your business makes from any given customer, throughout the entire length of the relationship.
CLV is an important, and largely overlooked, metric that you need to be tracking! Don’t make the mistake of monitoring your ROI and focusing on the individual sales from your investment, yet miss the big picture of looking to the future of the potential lifetime value of those new customers you just acquired!
One of the ultimate goals of any business is to cultivate active and loyal brand resonance among your core base of customers. The intensity and depth of this psychological bond developed is directly related to your ability to deliver active engagement, attitudinal attachment, and a sense of community to your customers. When you can transition new customers into loyal customers who are in sync with your brand, you have positioned yourself in a mutually beneficial relationship that ultimately profits your bottom line through higher CLV.
Brand loyalty directly decreases marketing costs, gives your time to respond to competitive threats, and attracts new customers through brand awareness and reassurance.
How exactly do you grow customer lifetime value through building brand loyalty? As an ECommerce business, you do not have the ability to interact with your customers directly in person or store; you must find ways to interact and engage with them online!
The following are tactics that can, and should, be used to grow your customer lifetime value.
Measure And Track Your CLV
I get it, this can be time-consuming and confusing to tackle, especially for an E-Commerce business. However, the benefits of measuring and tracking your CLV far outweigh the initial headache of figuring out how you are going to quantify this for your business. Measuring CLV is easiest done if you have a way of tracking each customer and their purchasing behavior. The simplest equation for measuring CLV is:
CLV = (Annual profit per customer) x (Number of years they remain a customer) – (Initial cost of customer acquisition)
Do not let this overwhelm you; many software tools can calculate this metric for you! Once you begin tracking your CLV, you will be able to explore different ways of increasing CLV, including:
- How to decrease costs of acquisition
- Ways to increase annual profit
- Ways to extend the life of the customer
- Different strategies for different value customers
Have A Retention Strategy And Back It Up
This tactic may seem like a no-brainer, but many companies do not have successful retention strategies and struggle to keep their customers engaged with their brand. You need to make this a priority within your business. You spend time and money working to acquire new customers, do not let easy future purchases slip away because you neglected to nurture new customer relationships!
It is not enough to solely talk about the retention strategy to your team. You need to put your money where your mouth is and back that up! You should have a place in your budget for customer retention, just as you have one for acquisition.
Use A CRM Tool
CRM, or Customer Relationship Management, tools are essential for E-Commerce businesses. This is the easiest and best way to manage all of your customers. These tools significantly reduce your processing time and increase your productivity. Not only do CRM tools provide the software for you to organize your entire customer base, but you can also perform endless operations, such as:
- Calculating CLV
- Segmenting your customer base for different marketing campaigns based on personalization of interests, annual revenue spent, etc.
- Track average order value, abandon-cart revenue
- Find buyer patterns and customer trends data
Increase Your Average Order Value
One way to grow the lifetime value of your customers is to increase their average order value. One of the easiest tactics to do this is utilizing cross-selling and upselling. You can incorporate these through adding in recommendations and suggestions in a variety of situations:
- Placing recommendations/suggestions for similar products that are at a higher price point
- Placing recommendations/suggestions for complementary products that go with the item selected, i.e. sock suggestions when a shoe purchase is selected.
- Sending a follow-up email after purchase for other products that customers have purchased that are similar to the ones bought
- Running a promotion campaign that requires customers spend a certain amount of money to receive a discount, i.e. 25% off when you spend $200.
Engage With Your Customers
If you want to grow the lifetime value of your customers there is no way around it; you need to engage with them. Successful engagement is the secret for how you turn your customers into loyal brand advocates.
How should you engage with your customers? There are several different strategies that your business can use across various channels. The only way to find out what works best for your business is through analyzing the outcomes of each attempted strategy you try.
Customer engagement is not a quick and easy tactic. However, it is vitally necessary for the success of your business. When your customer base regularly interacts and engages with your brand, your customer lifetime value will increase as they are developing a stronger relationship with you.
Don’t Sit In The Dark, Ask For Feedback
If you are not regularly checking in with your customer base for feedback you are asking to fail. In this day in age, there is no hiding from bad feedback and reviews. Successful websites are incorporating customer reviews and feedback directly onto their sites for anyone to see. When you regularly ask your customers for their opinions and feedback you are signaling to them that they have a voice in your company.
There is one big catch to this! When you ask your customers for feedback and reviews, you have to make sure you follow through and respond to them! You do not need to make changes for every negative review, but it is critical that at a minimum you acknowledge them.
Feedback and reviews are only two of many approaches to checking in with your customer base. Successful companies regularly conduct brand awareness studies, product usage patterns, customer attitude and behavior studies, and customer satisfaction and loyalty surveys. The more you know about your customers, the more productive you can be at growing your CLV!
Email.. The Holy Grail For Customer Retention
Email is the most successful tool that you can use for client retention and increasing CLV for an E-Commerce business. Once you have had a customer opt into giving you their email address you can compile data on their interactions with your company. This data is what you need to use to target each customer correctly! There are several approaches to use with email with different content strategies, including:
Transactional Emails – These are emails sent out because a customer triggered a response from the company.
- Welcome email introducing the brand after initial customer email collection
- Thank you for your purchase email
- Cart abandonment reminder email
- Invitation to rate the purchased product and give feedback at a certain set point after purchase
Newsletters – These can be sent out on a regularly scheduled basis (weekly, monthly, quarterly), or at random. Newsletters are a great way to push out a mixture of shareable content and promotional content.
The key with newsletters is to not become another spam message in your customer’s mind. It is better the send out compelling, interesting content that has the potential to be shared with their networks, than just mediocre content for the sake of getting a newsletter out.
Personalized Emails – There are two different tactics you can use, personalization at the customer level or the segment level. Using CLV data is what allows E-Commerce business to market smarter for different segments!
- Customer level – Using the data you collect on your customers, you can send out a personalized email based on the individual buying behavior. This type of personalization can be in the form of an email sent out with an “Other products similar to the ones you purchased” message.
- Segment level – Using CLV data you can segment out your customers to send custom messages and special promotions based on their average revenue spend.
As you can see, there are several different approaches you can use to grow CLV. When you break down each tactic, you can see a repeating trend – focus on your customers and what they want! When you take the time to engage with and understand your customers and their needs, you are guaranteed to see growth in lifetime value.