Do you remember a time when chocolate bars were bigger, the roads were less busy, and website traffic was WAY less expensive? Life was just less… complicated.
Your data on your eCommerce store has also got complicated, but it doesn’t need to be. You want to bring in traffic, convert it and hit your sales numbers - simple, right?
What are you going to use to deliver this? Some nice, wholesome data. But which data sets really matter?
Let’s get real, you need to simplify what you’re looking at. And, whilst we’re at it, let’s drop the obsession with Conversion Rate. With so much data, data paralysis can be a real danger, so we believe there is one key set of metrics that will drive sustainable and meaningful growth.
With ever rising acquisition costs as well as attribution issues for ad spend (that’s another story, but well worth checking out Triple Whale to help with that), you need to know exactly how much you can afford to spend on acquiring customers. The way to do this is by calculating your Customer Lifetime Value.
How do you calculate Customer Lifetime Value?
Placing your customer at the heart of your offering is key to increasing Customer Lifetime Value and long term profitability. This is made up of some core metrics;
Average Order Value, Purchase Frequency, Margin, and Customer Lifespan.
We all give our AOV a cursory glance and take it as gospel that this is telling us the whole story. It’s not.
Don’t get us wrong it’s a great measure, and a good number to track, but as with all averages they can be dangerous.
Do you have any particularly high or low value items in your store that could be really skewing your numbers? A single purchase of one high value item could make a dramatic impact on your average. So, when looking into this, dig a bit deeper, try and determine a genuine and consistent order value.
Once you have this you can start to come up with tests to help increase your true average order value using tactics such as cross sells and upsells.
You can even play around with your free delivery threshold as a way to bring up your order values. If your customers are close to free delivery with a reliable Average Order Value, the chances are, many of them will find that one extra item that will get them free delivery. Who doesn’t love free delivery?
Communication Is Key
One of the biggest problems brands face is around purchase frequency. How do you get a customer to order more of your product, more often?
A big hurdle to overcome is communication. The moment a customer places an order, and no matter how excited they are, they probably go through some buyer's remorse.
Your comms strategy can go a long way to help customers overcome any remorse they have by reassuring them. You can afford to get pretty heavy with the comms here too.
On average a customer checks their order status more than 3 times after checkout. This presents a great opportunity to show them some love as well as giving them a reason to place another order. Some great touchpoints are;
- Thanks for buying it!
- Here's when you'll get it.
- We're just getting it ready.
- It's on its way.
- It's there!
- How was it?
- It's been a couple of days, how are you getting on?
- It's been a week, all good?
- Would you tell your mates?
- How about this other thing?
With many brands now offering subscriptions, this is a great way to ensure positive cashflow and repeat orders. It has one big problem though…
It doesn’t account for individual consumption rates.
If your customer usually receives their orders on a monthly basis, why not work out who needs their order replenished at 3 weeks? This would push a customer's total orders for the year from 12 to 17, that’s 41%+ increase!
The team at Relo have brought this opportunity to life. Based on AI and personalised consumption data, you can now accurately predict when each customer is going to need to replenish their product.
The good news is, you don’t even need a subscription for this to work either. You can use the same consumption prediction for one time purchases too! Not only can you increase purchase frequency, you can also help close that gap between first and second order - magic!
What would your Customer Lifetime Value look like if you increased your Purchase Frequency by 40% or more? Once you know what your Customer Lifetime Value is, you will be able to determine EXACTLY how much you can spend to acquire a customer.
A good ratio is 3:1 - Customer Lifetime Value to Customer Acquisition Cost. At, or above that and you can start to get really aggressive with your acquisition strategy and outspend your competitors.
Anything below 3:1 and you need to start reducing ad spend, increasing Customer Lifetime Value, or getting smart about the traffic you are targeting.
Either way, with this one number, you’ll know exactly where to put your efforts and maximise all your budgets.
Help is on the way
Talk to us about how we can help you increase your sales and your profits, now and in the long term, by growing your Customer Lifetime Value.
Check out our free industry benchmarking tool and see how you measure up in your sector against customer lifetime value, average order values, and more.
