Growing Customer Lifetime Value

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Defining Customer Lifetime Value

Customer Lifetime Value (CLV) is defined as the total dollars flowing from a customer over the entire relationship with that customer. 

On the right, is a simple example with a customer that has made multiple purchases over a period of time. One could say this customer has a Customer Lifetime Value of $170. Often, marketers will try to box in CLV to a time period to create some consistency; many clients look at CLV as a 3-year metric. This CLV calculation now presents you with some interesting data and the opportunity to take action. For example, if you discover that the 3 year CLV of a customer who buys a certain product, say coffee, is $300, then the $170 about 18 months into a relationship, as shown on the right, would appear to be on pace. However, if the 3-year CLV of coffee buyers is $1,000, and you're seeing a CLV of $170, there's a problem. This is where marketing automation comes into play, allowing retailers to automatically trigger emails based on key data points, such as CLV. In this instance, a win-back series or up-sell series would be triggered to try and boost CLV. 

How to Calculate CLV

Try Our FREE CLV Calculator

Customer Lifetime Value in Action

According to the 2015 Retention Marketing Survey, conducted by InternetRetailer, more than half of online retailers (55 percent) know their average CLV. This is a great start, but to truly create personalized marketing campaigns, you need to know much more about your customers. 

See how our client, L'Oreal, is using CLV to create marketing campaigns that maximize customer retention.

Our Retention Analytics Suite integrates three years of customer purchase data, so that you can instantly see CLV for various segments and personas based on purchase history and other factors. This customer data is essential for creating targeted email marketing campaigns to better engage with your audience. However, only 23 percent of retailers know their Customer Lifetime Value by key segments, and are able to use this information to power personalized marketing campaigns.

The Benefits of Analyzing Customer Lifetime Value

  • Managing the customer relationship as a monetary investment 
  • Helping to steer marketing away from short-term customers or those who are likely to only make small, low-dollar purchases
  • Maximum return on marketing campaigns 
  • Helping to Identify and reward customer loyalty

Our clients are seeing a 20% increase in CLV year-over-year, as well as an average retention rate lift of 17%. Contact a member of our team to turn your customer data into an actionalbe lifecycle email marketing strategy and grow customer value for your business. 

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Where Does the Industry Stand?

With industry leaders like Amazon, Zappos and Bonobos outperforming so many eCommerce businesses, it's important to understand why.

Simply put, these eCommerce giants have a maniacal focus on retaining their customers, with retention rates of 60-80%. In doing so, they have been able to grow customer lifetime value substantially.

 

Compare this to the startling statistic, uncovered in the 2015 Retention Marketing Survey conducted by Internet Retailer:

60% of retailers report a retention rate of less than 20%

This means that the vast majority of retailers are losing 4 out of every 5 new shoppers to their competitors - basically, spending their hard fought acquisition dollars yet never seeing a profit from 80% of shoppers.

So How Can Retailers Impact Customer Lifetime Value?

 

Customer Lifetime Value Increases Through:

  •  Higher Average Order Value: Repeat buyers spend twice as much, on average, as 1x buyers.
  •  Referrals and word of mouth evangelism generated by loyal, repeat shoppers.
  •  Unlocking higher margins at subsequent purchases, ensuring that the cost of acquisition is not only covered, but exceeded, thereby freeing up cash for product innovation, technology adoption, and even strong acquisition positioning.

Even though eCommerce is growing at a healthy year-over-year rate, it has gotten more competitive and more complex.  Shoppers have far more choices, and are inundated with 100s of messages daily.  

Growing a sustainable eCommerce business requires a shift from an acquisition mentality to a constant focus on growing customer lifetime value, retaining more customers, and personalizing the customer experience at every stage of the lifecycle.

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