For eCommerce businesses, particularly Shopify merchants, the importance of Customer Lifetime Value (CLV) cannot be overstated. With rising acquisition costs and growing competition, the key to sustainable growth is not simply attracting new customers but optimizing the value of your existing ones. CLV serves as a powerful metric that helps you not only measure the total worth of a customer throughout their entire relationship with your brand but also provides insight into the effectiveness of your retention and customer engagement strategies.
At Blend Commerce, our focus has always been on long-term growth through personalized experiences that extend customer relationships. With advanced methodologies like our CRO Plus Program, we help Shopify merchants increase their CLV, driving sustained profitability and brand loyalty. This blog will walk you through:
- What is Customer Lifetime Value (CLV), and why is it crucial to your Shopify store?
- The steps to calculate and track your CLV.
- Proven strategies to extend your CLV, including personalized experiences and advanced segmentation.
- How tools like Lifetimely help automate CLV measurement and uncover deep insights into customer behavior.
Let’s dive into why focusing on CLV can transform the way you do business.
What is Customer Lifetime Value?
Customer Lifetime Value (CLV) refers to the total revenue a customer is expected to generate during their lifetime relationship with your brand. For eCommerce businesses, CLV represents a vital indicator of customer loyalty, satisfaction, and overall business health. Knowing your CLV is critical because it informs decisions about marketing investment and product development and gives you insight into how well your retention efforts are working.
In the context of Shopify merchants, CLV is influenced by three primary metrics:
- Average Order Value (AOV): The average amount of money spent per transaction.
- Purchase Frequency (PF): How often customers make a purchase over a given period.
- Customer Retention Rate (CRR): The percentage of customers who continue to make purchases over time.
These metrics allow you to project long-term revenue and make smarter business decisions. The higher your CLV, the more value you derive from each customer, reducing the dependency on costly new customer acquisition.
Why is Customer Lifetime Value (CLV) So Important?
For Shopify stores, focusing on CLV offers a wide range of benefits:
- Profitability Boost: If it costs you £20 to acquire a customer, but they only spend £18 over their lifetime, you are essentially losing money. However, your profitability surges if their lifetime value grows to £200 or £500.
- Improved Forecasting: With a solid understanding of your CLV, you can more accurately predict future revenue and make better decisions about marketing budgets, product lines, and inventory management.
- Better Customer Experience: By tracking CLV, you’ll better understand what keeps customers loyal, enabling you to refine your customer service and marketing strategies for long-term retention.
- Higher ROI on Acquisition: Increasing CLV allows you to justify spending more on customer acquisition, knowing that your return on investment (ROI) will increase over time.
Why Should You Measure Lifetime Value (LTV)?
The benefits of measuring LTV extend beyond profitability; they offer a deeper understanding of your customers and help refine your overall strategy. By tracking CLV, you can:
- Understand Customer Behavior: CLV helps you recognize patterns in customer purchases, making it easier to identify the types of customers who are most valuable and craft strategies that appeal to them.
- Lower Acquisition Costs (CAC): When you know your CLV, you can focus your marketing efforts on customer retention, thereby reducing the need for continuous customer acquisition. This improves your overall CAC ratio.
- Identify Retention Gaps: By measuring CLV, you can pinpoint areas where customers are dropping off, allowing you to address issues and create campaigns to retain them longer.
- Encourage Repeat Purchases: Tracking CLV helps you understand the factors that drive repeat purchases, whether through loyalty programs, upsells, or personalized recommendations.
How do you measure Customer Lifetime Value?
Accurately measuring your CLV is key to ensuring your business strategy is working to improve long-term revenue. We'll walk you through the steps to calculate CLV using metrics like Average Order Value (AOV), transaction frequency, and customer retention rate. Many of these metrics are readily available in your Shopify analytics. While it appears to be a simple metric, this can be tricky to determine manually using your Shopify analytics alone.
Follow these four steps to determine your customer lifetime value:
- Calculate your Average Order Value (AOV): You will have likely already calculated this, as it is an important eCommerce metric. If you have not, use data from the last three months, and divide the total by the number of separate sales your business has made. Or you can find this aggregated metric within your Shopify analytics in the admin.
- Determine the average number of repeated transactions per period: Depending on your type of business, the frequency of visits in an important metric. For a local coffee shop, this might be three times a week, while a shop that sells running shoes will see repeated visits once or twice a year.
- Measure customer retention: The last thing you want to determine is the loyalty of your customers - how long do they use your brand for? Are they a customer once, for a year, or for ten? This is possibly the most important metric when determining LTV, as it indicates customer satisfaction.
- Calculate your Customer Lifetime Value: You now have all three metrics needed to determine your LTV. Use the following formula to calculate your customer lifetime value. CLV = Average Transaction Size x Number of Transactions x Retention Period.
An example of CLV would look like this: CLV = £3 (average sale) x 50 (annual visits) x 5 (years) = £750
There is always a risk of mistakes when it comes to manual calculations. At Blend, we rely on tools like Omniconvert or Lifetimely to accurately calculate and track CLV and LTV to ensure we uncover insights and recommendations to help you drive these important metrics for long-term business growth.
Lifetimely to Find LTV
Lifetimely is an analytics tool designed to make tracking Customer Lifetime Value easy and automatic for Shopify merchants. Lifetimely provides in-depth insights into customer purchasing behavior, calculates CLV in real-time, and offers features like cohort analysis, customer segmentation, and detailed reports on retention rates.
Here’s how Lifetimely can help:
- Real-Time CLV Tracking: Lifetimely integrates directly with Shopify, allowing you to track and measure CLV as customer data comes in. You no longer have to rely on manual calculations or aggregated reports.
- Cohort Analysis: Understand how different groups of customers perform over time. By analyzing customer cohorts, you can identify trends in retention and purchasing behavior, enabling you to fine-tune your strategies for specific customer groups.
- Predictive Analytics: Lifetimely uses AI to predict the future CLV of your customers, helping you project revenue and optimize marketing spend based on the most valuable customer segments.
- Integrations with Marketing Tools: Lifetimely integrates seamlessly with tools like Klaviyo, allowing you to use CLV data to create more personalized email flows and campaigns.
With tools like Lifetimely, tracking CLV becomes an automated process that provides actionable insights into how to grow your business by focusing on customer retention and personalization.
How do you extend Lifetime Value?
Understanding your Customer Lifetime Value is just the beginning. The real magic happens when you take actionable steps to extend it. Improving CLV comes down to creating a better experience for your customers. This could be through personalised offers, loyalty programs or enhanced customer service.
We'll discuss some effective strategies you can use to boost CLV, and how Blend's CRO Plus Progam helps Shopify stores like yours to implement them.
The key to extending LTV is personalisation and there are so many strategies you can employ to help you personalise your customers experience.
Build an Onsite Quiz
An onsite quiz is a great way to collect zero-party data about your customers. You can obtain valuable information about their preferences. Octane AI is a third-party app that allows you to create an interactive quiz on your Shopify store for your customers and potential customers to explore. Your customer will move through a series of strategic questions and select their answers. Each answer will be stored as a tag on their profile property within tools like Klaviyo. And at the end of the quiz, you can capture their email address and they will receive personalised product recommendations onsite.
You can then take this a step further and use segmentation within your email marketing to create targeted flows or campaigns that will show your customer products and content based on their preferences.
The results is an increase in customer engagement, tailored marketing and messaging and higher conversion rates.
Advanced Segmentation in your Email Marketing
Although we have already touched on segmentation through email marketing based on an onsite quiz, there are other tools you can use to segment your audience in your ESP account.
If you are using Klaviyo, you could create advanced segmentation within your Flows and Campaigns based on RFM Segmentation through Klaviyo CDP. There is also a great tool called Omniconvert that can establish your RFM segments that integrates with Klaviyo and you can leverage this to tailor your marketing based on the customer segment that you're trying to target.
By providing relevant information at the appropriate time to your customers, you increase the likelihood that they will make a purchase. Thereby, increasing your purchase frequency and, as a result, their Customer Lifetime Value.
Cross-Sells and Upsells
Part of your Customer Lifetime Calculation is the element of your Average Order Value (AOV). Rebuy is a third-party app that integrates with Shopify to help you personalise the shopping experience your customers have on your store. Through Rebuy, you can implement "You May Also Like' sections on your Product Page, you can offer dynamic bundles too and there is also a Smart Cart, which incorporates both cross-selling opportunities and gamification in the cart. Rebuy also offers you the choice between using their powerful AI product recommendations, which is based on user behaviour, or you can you implement your own rules through the Rebuy data set.
Here are some additional strategies you can use to increase your CLV:
- Improve customer service and experience
- Create customer loyalty and reward programs
- Use social media and marketing to improve brand awareness
- Improve customer onboarding and engagement
- Use technology and software to make sure your site is fast and easy to use
Extending Lifetime Value vs Acquiring a New Client
It's a common dilemma for eCommerce businesses. Should you invest in acquiring new customers or focus on extending the value of your existing ones? While acquiring new customers is important, it really is, retaining and maximising the value of your current customers often results in a higher return on investment.
Acquiring new customers is an expensive task. Investing resources in extending Lifetime Value can have better return on investment than acquiring a new client. The resources required to convert a brand new client are often extensive, as the potential customer needs to find out about your brand, and trust it before making a purchase. While a good marketing strategy can achieve this, it is often easier, and cheaper, to work with your current clients. This doesn't mean that acquiring new customers isn't important. Just the opposite. But there are ways to leverage your existing customers to drive your revenue and profitability.
If you are able to drive your Customer Lifetime Value, if you kept your cost of acquisition the same, you would make more money from your customers, on average. This means that your cost of acquisition remains the same, but your revenue has grown, thereby increasing your return on investment into acquisition as well as increasing your bottom line.
Measuring CLV: Lifetimely and Omniconvert
Two of the most efficient tools for measuring and improving CLV are Lifetimely and Omniconvert. These platforms integrate seamlessly with Shopify to provide you with actionable insights into your customer base, allowing you to segment, track, and predict CLV with ease.
Lifetimely:
A powerful analytics tool designed for Shopify stores, Lifetimely calculates CLV in real-time, helps you segment customers, and provides cohort analysis to better understand purchasing behaviors. You can use it to track performance and optimize marketing campaigns toward higher retention and increased AOV.
Omniconvert:
Omniconvert is another exceptional tool that not only tracks CLV but also offers a suite of conversion rate optimization (CRO) tools to improve customer retention and experience.
Maximize Your CLV with Blend Commerce’s CRO Plus Program
At Blend Commerce, we are experts in conversion rate optimization (CRO), and our unique CRO Plus program combines the power of CRO with Customer Value Optimization (CVO) to help Shopify stores increase their Customer Lifetime Value (CLV). By integrating advanced personalization techniques, segmentation strategies, and ongoing customer engagement methods, we help our clients maximize their long-term revenue and build loyal customer bases.
Our approach goes beyond short-term conversion boosts, focusing instead on the full customer journey. Through personalized onsite quizzes, data-driven email marketing, cross-selling, and loyalty programs, we optimize every touchpoint to drive higher CLV.
If you’re looking to optimize your Shopify store for growth and profitability, our CRO Plus Program is designed to transform the way you engage and retain your customers.
Ready to take your Shopify store to the next level? Whether you’re looking to boost conversions, improve customer retention, or maximize CLV, Blend Commerce has the expertise to help you succeed. Book a no-obligation call today.
Published: March 15, 2022
Last updated: October 22, 2024