Checking company figures on tablet

Metrics matter in retail and ecommerce. We live and die by sales figures, footfall, conversion rates and all those other vital KPIs. That’s why marketers and customer service professionals have to deal with more acronyms per day than you’d get in the average Line of Duty episode. You need to know your NPS from your CSAT, CPA and AOV.

Above all, you need to know your customer lifetime value (CLV). Customer lifetime value is one of the metrics that matters most when it comes to retaining loyal customers, according to many leading industry authorities. In this article, we’ll explore what it is, why it’s important and how it’s measured. Then we’ll go on to show how it can be improved, and how we can help at Sorted. We’ll cover:

  • What is customer lifetime value?
  • Why is customer lifetime value so vital in ecommerce?
  • How to calculate customer lifetime value
  • What can you learn from your customer lifetime value?
  • How to increase customer lifetime value
  • How to improve customer experience

What is customer lifetime value?

CLV is defined as the amount of money a customer will be worth to your business throughout the entirety of the relationship. The total they spend with you, minus the cost of gaining and maintaining their custom.

Think about it this way. It means balancing your total revenue per customer, against your expenditure per customer. That’s what customer lifetime value measures.

Why is customer lifetime value so vital in ecommerce?

Why Customer Value is Important

The simple truth about ecommerce is that customer retention is the key to business profitability and growth. Because repeat customers spend more with you.

When you’re making more money, you’re assured of a healthy cash flow. You can also spend more on marketing, so you can attract more customers and incentivise them to buy more often, creating a virtuous circle.

That means to be successful you don’t just need customers; you need fully connected customer relationships. It costs five times more to attract a new customer than it does to keep an existing one. So, CLV enables you to monitor and measure your success with those all-important repeat customers.

How to calculate customer lifetime value

Customer Lifetime Value Calculation

You can work out how to calculate lifetime value of a customer by adding up the value of each purchase that customer has made, then comparing it with the cost of acquiring and keeping their custom.

The first bit is easy, how much each person spends per purchase is a matter of record. The second part can be trickier and will vary greatly from business to business. It means putting a cash value on all your marketing, ecommerce, customer services, and delivery functions. Once you can put a figure on your customer acquisition cost, you’re ready to calculate CLV and track it.

What you can learn from your customer lifetime value

With all that data in hand, you can calculate not only each customer’s historic CLV but lots of other indicators too, such as:

  • Average monthly transactions
  • Average amount spent per transaction
  • Average number of months your customers remain loyal
  • Average gross margin

You can also predict future customer spending and value to your business.
CLV isn’t a once and for all measure. Customer relationships change, develop and mature. Sadly, they can also go wrong. The value of customer relationships to your business will fluctuate accordingly.

Keep an eye on CLV, because it is one of the metrics that can provide the insights you need to turn expensively acquired first-time customers into profitable regulars. When your average customer lifetime value is increasing, you know you’re making the right impression on your existing customers and tempting them back for more. You can then apply that learning to first-time and future customers.

How to increase customer lifetime value

Anything that improves your ability to convert and keep existing customers happy will improve your customer lifetime value. Things can always go wrong, so it’s important to mitigate the risk of losing customers with the kind of responsive, proactive communications that we helped musicMagpie to introduce.

Tactics that can made a difference include:

  • Standing out from your competitors by using data insights to create a personalised customer journey, especially in the crucial post-purchase phase.
  • Adding products and services that complement what people are buying. If someone orders a leopard print dog collar, they’re likely to be in the market for other types of distinctive canine apparel.
  • Using branded tracking to give each customer a delivery experience that brings them back for more.
  • Saying “thanks for buying”. A thank you email will be appreciated, keeps the relationship going and can often lead to another purchase.
  • Using social media to stay in touch. When somebody makes a purchase, encourage them to follow you on social while the customer is feeling the love. Then you have multiple channels for nudging them towards the next purchase.
  • Keeping customers engaged in your visual identity and tone of voice at every touch point so they can build a strong affinity to your brand.
  • Starting a customer loyalty programme. Reward and incentivise your regular customers. It may not be original, but it works.

There’s one more proven way to keep your buyers happy and hungry for more, and this is where Sorted can really help.

How to improve customer experience

When customers buy once but don’t come back for more, it’s often because they had a problem with some aspect of the buying process. Perhaps your site crashed when they were mid-purchase, or they were irritated by being asked for unnecessary information. It may even be something as important as the expected delivery promise not being met along with poor communications and updates regarding their parcels.

But it can also be because of an unsatisfactory delivery experience or having to check ‘where is my order’ (WISMO). Customers expect a package to arrive on the right day or at the right time. If this fails and the parcel is late or shows up after the birthday it was ordered for, you have an unhappy customer on your hands. This can easily lead to poor customer satisfaction and customer retention.

And that’s where we can make a big difference at Sorted. We passionately believe that first-time buyers are ripe for conversion into regulars. And the secret of doing that is to have an exceptional customer strategy and provide an excellent ongoing experience. One they’ll be keen to repeat again and again.

Sorted Track is the ecommerce solution that makes it easy for your team to engage with each customer beyond the buy button. It ensures placing the order is just the start of a beautiful, long-term relationship and transforms each post-purchase touch point into a five-star experience.

By providing a fully connected delivery journey for you, your logistics partners and your customers, we can help you to:

  • Automate branded tracking and delivery communications to connect with your customers, wherever they are.
  • Empower customers to benefit from self-service parcel updates rather than feeling the need to get in touch.
  • Reduce customer contacts and keep your teams connected and informed with delivery and returns insight they can act upon.
  • Expand your brand experience into delivery, driving engagement and boosting your CSAT and NPS scores.

Ready to discover how a seamless delivery process can help you- maximise your customer lifetime value by turning more first-time buyers into long-term customers? Get started now by booking a demo of the Sorted platform.