How To Grow The Lifetime Value of Your Ecommerce Customers (Part 4 of 5)
When you start a company, getting sales is only the first step. Sure, you’re thrilled with your first 1,000 sales, but you don’t just want 1,000 consumers to buy your product once. You want those 1,000 to buy from you again and again.
You want a solid base of loyal, consistent customers.
That’s where lifetime value comes in.
Acquiring new customers costs five to ten times more than keeping current ones, so it’s in your best interest to retain your clients’ business once you’ve gotten them on the hook.
So, how do you increase your clients’ lifetime value exponentially? Simple (well, in concept anyway…) By building brand recognition and earning customer loyalty through great products and service.
The LTV Equation
Lifetime value (LTV) refers to the amount of money you expect to make from each customer throughout your relationship.
Use this simple formula to calculate basic LTV:
Calculating LTV is simple:
(Average Order Value) x (Average Number of Repeat Sales per Customer) = LTV
If you don’t have much data, you can probably take an educated guess at the above, but if you have strong data it’s easy to see what your baseline is.
No matter how you calculate it, the important thing to note is that there are two key ways to increase lifetime value.
- Get customers to spend more money at one time (increase average order value).
- Increase the number of transactions during the course of the relationship (Number of Repeat Sales)
It’s not rocket science, but this metric is invaluable to your brand and should transform the way you market to your audience.
Building Your LTV Strategy
The key to a good LTV strategy is in the name: lifetime. It’s an ongoing process of engaging with and rewarding your customers.
Take these steps to grow your customers’ LTV:
Establish your brand.
Customers aren’t just buying your products, they’re buying into your brand’s story and mission. When you cultivate brand recognition through consistent, positive experiences, customers invest emotionally and want to come along for the ride. You earn their loyalty not only through quality products and services, but also personalized interactions that tell them who you are and why they should continue their relationship with you. Use social media to stay in touch with customers and give your brand a face customers can relate to.
Use email to provide value, not (always) sell.
We like to use a 4:1 give-take ratio when it comes to emailing our clients. We update them about product offerings, but we focus our newsletter on delivering valuable, engaging content. Newsletters should serve both you and your customers. You might include a coupon code or deal, but there should be enough value to keep them reading even when they’re not looking to buy.
We recommend segmenting your email list so you can tailor your communications. Create separate campaigns for one-time buyers and those who have purchased several different products. Each group poses unique challenges and needs to be wooed in a specific way. You can send smart product suggestions to repeat customers, while one-timers might need a special discount or deal to come back.
Excel at customer service.
Customer service is far and away the best strategy for retaining clients. Going above and beyond to address their concerns lets them know you hear and value their feedback and assures them you’ll take action on their problems.
We love flying Southwest Airlines for this very reason. If we have a bad experience, all we have to do is send them a tweet and they’re on the problem within minutes. A fast response time is crucial to good customer service, so make it easy for customers to reach out via live chat, email, or phone when they have a problem.
And make sure not to create extra work for your customers. If you send out the wrong product, make it as easy as possible for the customer to return it… or just let them keep it! Sometimes you need to prioritize user happiness over saving a few dollars.
Surprise and delight.
Move over, shock and awe. The only campaign your company needs is one of surprise and delight, adding a personal touch to your service that shows you know your customers and that you care.
Naked Wines, the crowdfunded wine merchant, knocks this out of the park. They’ll surprise you with a bottle of wine in your account for $1, or switch out current wine deals for varieties that match your taste preferences. They get creative when anticipating client needs, a great way to earn lifetime loyalty.
But you don’t have to send customers a bottle of wine to delight them (although this usually works on me…).
Put a 25 percent off coupon in your email autoresponder when someone signs up for your newsletter, or package a small gift in their order when it ships. Small touches leave an impression and keep your brand top of mind.
The moral here is to focus on the long game. In order to increase the lifetime value of your customers, you’ll need to sacrifice some sales and even spend a little money in the short term. But it will be worth it in the end. The investment you make in the long term customer relationship will generate the future sales. Your early sacrifices and spends will pay off.
And remember, when you solve a problem for a customer, not only do you create a customer for life, you also gain an advocate for your brand that will generate new customers for you. It’s like the gift that keeps on giving…