Do you know exactly how much your customers are worth?
Although you can’t put a price tag on the folks that keep your business afloat, you should have a pulse on how much they’re spending and how long they stick around.
Because it’s well-documented it costs way more to acquire a new customer than it does to retain the ones you have.
Listen: if you've already built a customer list, you’ve done the hard part. The long-term goal of any thriving ecommerce business should be to boost the value of its existing customers.
Doing so starts with measuring your CLTV.
In this guide, you'll learn:
- What CLTV is (and how to calculate it yourself)
- Actionable ways to increase your CLTV via email marketing
- How top brands use email marketing and automation to retain more customers
What is CLTV?
CLTV (customer lifetime value) is a business metric that measures how much money someone person spends during the customer lifecycle. Measuring the lifecycle of the average customer, you can determine how much people typically spend, how often they purchase, and how long they stick with your business.
The big-picture purpose of measuring your CLTV? Uncover opportunities to increase your customer retention rate and reduce your churn rate. In simple terms, churn rate measures the rate at which customers stop doing business with you.
The importance of CLTV as a performance metric can’t be overstated. Heck, here are some figures based on our most recent Commerce Roundtable that highlight the value of your current customers:
- It’s 25x times harder to acquire a new customer than to retain a current one (!!!)
- An existing customer will spend 31% more on any given purchase
- After a single purchase: 27% of shoppers will come back for a 2nd. A 2nd time buyer is 45% more likely to buy a 3rd time. A 3rd purchase is 54% more likely to buy again.
- Repeat customers spend 17% MORE per transaction (and 25% more during the holidays!)
Translation? Focusing on existing customers is that you can increase your cash flow without having to constantly hunt for new prospects. Acquiring new customers is obviously crucial to growing your business, but prospecting is both costly and time-consuming.
Once you have an established customer base, you can focus on marketing to them for the sake of your business’ longevity and profitability.
How to calculate customer CLTV
We know you probably don’t feel like a math lesson right now, so we’ll keep it simple.
Here’s a basic CLTV formula for figuring out the value of your average customer:
And here are some additional calculations, for reference:
Average order value = Total revenue / total orders
Average purchase frequency = Total number of purchases / unique customer purchases during a defined time frame
Average customer lifetime = 1 / your churn rate (you can find your churn rate like this: total customers who bought this year and last year / total customers who bought last year).
Whether or not you calculate your customer LTV on a regular basis and treat it as a KPI is up to you (this is typically something SaaS companies do). What matters is that you make a conscious effort to improve yours over time.
How to increase your customer lifetime value with email marketing
Loyal customers don’t happen by accident.
Below we’ve broken how marketers can use email to boost their CLV, including real-world examples from some of the best brands doing business today.
1. Segment your list to identify your “best” customers
While you should definitely have love for all of your customers, some are obviously more valuable than others.
The sooner you’re able to identify your most valuable customers (MVCs) and how they engage with your business, the better. Figuring out who your MVCs might start with order value or money spent, but there are other factors and metrics to dig into such as:
- Engagement (or lack of)
- Sign Up Source (pop ups vs buyers vs abandon carts)
- Demographics (gender, age, location)
- Product Interest (category or interests)
- Purchase History (repeat)
These factors not only help you identify your MVCs, but also your least valuable customers.
eCommerce companies of all shapes and sizes follow what we call the 20-60-20 rule. This rule serves as a representation of your audience and their purchasing behavior. No matter what you’re selling, every business has a similar distribution of customers as highlighted below:
- The lowest 20% of your customers, representing people who may have made a small initial purchase but never followed up and still don’t respond to your emails
- The middle 60% of your customers, representing people who are generally happy and engage from time to time but still seem on the fence about a second purchase
- The top 20% that have made repeat purchase, regularly open your messages and represent your most rabid customers
For the sake of improving your customer LTV, your top priority should be determining who your top 20% are and how they behave. Then, figure out how to give them the VIP treatment.
How do you spot your best customers, though? In Sendlane, you can use your Deep-Data Integrations to identify and segment your customers based on past purchasing behavior. If your business uses a CRM, you can look there as well.
You can likewise segment your customers directly within Sendlane. For example, you can segment customers by # of orders or how long they’ve been a customer. Spotting your VIPs only takes a few seconds this way.
Below’s a snapshot of how Sendlane can pull the data directly from your ecommerce store to segment your customers based on CLTV.
From here, you can send out exclusive promotions or even invite folks to be part of your brand ambassador program. You could likewise encourage them to help with your marketing efforts by sharing purchases on social media.
2. Hyper personalize your emails to address past customers directly
The importance of personalization is obvious when it comes to boosting your CLTV.
You obviously shouldn’t send one-size-fits-all messages, especially to those who already know you are familiar with you. Doing so feels careless, you know?
But personalization should be about much more than just addressing your customers by name: we recommend taking things to the next level through hyper personalization.
Hyper personalization means finding a balancing between writing emails that make your customers feel like VIPs and using email data to highlight your relationship as a business. Achieving hyper personalization is a three-step process:
- Send emails with a purpose. You shouldn’t reach out to customers “just because.” Something as simple as promoting your offer as a past customer exclusive (see the point above) or a sale for something they’ve bought before provides context to your message that doesn’t make it feel pushy.
- Make them feel unique and appreciated. So much of writing effective marketing emails is about delighting and hyping up your customers. Taking a positive tone and making your messages feel like they’re written by a human can really help. Evoking emotions is a huge plus. If nothing else, thank your customers and let them know you’re looking out for them.
- Tell them something about them. A purchase. A visit. A preference. You name it! This is where email data tools (like Sendlane’s hyper personalization features) can highlight past behaviors that remind your customers that you know them. Past data can also highlight when to send your messages, which offers to promote, and so on. This goes hand in hand with segmenting your list. The email below from Petsmart is spot on for this!
3. Optimize your check-in and offer timing
Piggybacking on the concept of hyper personalization, this is arguably the easiest and most straightforward way to boost your customer LTV.
But email timing is tricky. Finding the “right” amount of touchpoints takes time, as does figuring out when folks are most likely to open your messages.
This speaks to the importance of using a tool like Sendlane to help you gather customer data and understand the optimal timing to message your customers.
The goal here isn’t just to bombard your email list with offers. Instead, your goal is to structure your message frequency in a way that makes sense. Through experimentation and behavior-tracking, you can figure out what works ASAP. Sendlane’s platform actually allows you to run experiments yourself to figure it out.
Another important piece of increasing your offer frequency is switching up the types of messages you send. You obviously don’t want to spam folks with the same “BUY NOW” emails over and over. The good news is that there are plenty of customer retention emails to send.
Time-sensitive offers. Holiday emails. First-time discounts. The list goes on and on.
ButcherBox is a prime example of a brand that sends a wide variety of offers to their list without wearing them out.
(Source: Butcher box)
4. Create referral and loyalty programs that encourage customers to promote you
No surprises here. Referrals help low your customer acquisition costs by encouraging your existing customers to market on your behalf.
Oh, and referred customers are more loyal and higher-spending over time.
Below is a brilliant referral email from Tiny Organics that highlights how you can build buzz for your own referral program.
(Source: Tiny Organics)
At a glance, referral programs might seem like a lot of work. We recommend building one after you’ve established a customer base instead of when you’re building your list from scratch. The more repeat buyers you already have, the more likely they’ll be to spread the word.
Either as a supplement or alternative to your rewards, creating a customer loyalty program goes hand-in-hand with increasing your CLTV.
Exclusive rewards and discounts not only make your customers feel like VIPs, but also encourage keep them from bouncing to competitors.
And by encouraging people to make repeat customers and providing bonuses for doing so, you quickly cement yourself as the go-to business for whatever you might be selling.
Below’s a great example of TOMS’ loyalty program. Rewards such as free shipping, birthday offers, and early sale access highlight low-hanging opportunities to delight your customers and entice them to buy again and again.
Despite popular belief, loyalty programs aren’t just reserved for big businesses. For example, you can use something like Smile.io to get your program off the ground (hint, hint: you should totally check out our Smile.io integration).
5. Increase your average order value prior to checkout
Driving customers to spend more doesn’t necessarily mean raising your prices.
For example, consider how small tweaks to your eCommerce checkout flow can result in more sales. This might include:
- Recommending related products when someone adds an item to their cart
- A target price for customers to receive free shipping
- Countdowns and time-sensitive offers on-site
Below is an example from Old Navy which ticks all of these boxes. These sort of incentives (free shipping, short-term sales, recommended products) are likewise perfect to promote throughout your email campaigns.
(Source: Old Navy)
6. Explore new upselling and cross-selling opportunities via email
We’ve talked before about how email is such an effective tool for upselling and cross-selling your customers.
Small add-ons and upgrades made by a fraction of your list can add up to big-time sales when presented to your entire list.
Perhaps the best way to upsell and cross-sell is through recommending products to customers. Given that the average person is overwhelmed by product choices in the first place, recommendations can help provide a much-needed push and help reduce analysis paralysis.
Check out Lululemon’s subtle product recommendation email below, for reference:
It’s important to find a balance between being subtle and too in-your-face when upselling and cross-selling. All you need to do is provide the opportunity for your customers to spend more. You might be surprised at how many people will take you up on the offer.
7. Put customers on a clear path to purchase with your welcome emails
Welcome emails are the most-opened and most-engaged-with messages your business will ever send.
And so you need to make the most of them when it comes to increasing your customer LTV.
Given that this is the email your subscribers are most likely to see, sprinkling in some offer opportunities makes perfect sense. Not doing so means leaving money on the table.
Some subtle ways to put subscribers on the path to purchase in a welcome email include:
- Providing multiple calls-to-action for new customers to check out offers
- Including a coupon code or discount offer as part of your introduction
- Highlight your loyalty or rewards program
The idea here is that you’re familiarizing folks with your brand while also giving them a chance to buy from the word “go.”
This message below from Coastal is a good example of how to do this. They provide a snapshot of what their company is all about, how to make a purchase, and a couple of discounts to entice readers to buy right then and there.
See how that works? In short, your welcome email should be a progression that starts with an introduction and ends with a transactional CTA.
8. Replicate your most effective offers and campaigns
As noted earlier, you’re spoiled for choice in terms of the customer retention emails you can send.
But you should obviously make a point to replicate your top-performing ones, right? This means you get the best bang for your buck with every message you send.
This is yet again where a tool like Sendlane can come in handy. Our platform digs into your customer behavior data to highlight which emails performed best in the past. For example, consider how dashboards in Sendlane can help you spot common threads between your optimal message type, discount rate, and more
9. Offer speedier, more personalized customer service
Building better customer relationships is key to retention and increasing your customer LTV.
This means providing stellar support to your buyers. These days, customer satisfaction is just about as important as your product. In fact, the majority of customers will stick with a company based on their service and support alone.
Of course, email is central to customer support. From responding to people in a timely manner to providing resources to help them find answers, make sure you’re personalizing your responses.
Trust us: people will take notice when you give them personal attention.
Note that increasing the value of a customer doesn't mean squeezing money out of them. Better service is a simple yet significant way to boost your CLTV. After all, being personable and paying attention to customer concerns doesn’t actually cost anything.
10. Introduce long-term, subscription-based offers and products
Subscription services are all the rage right now.
And it’s no different in the world of ecommerce.
Locking people into longer-term deals does double duty of guaranteeing revenue while also making your product a staple of your customers’ lives.
This might sound dramatic, but think about how many people rely on services like Hello Fresh or can’t live without Netflix. You can create the same sort of loyalty with your product, too.
For example, brands like Yoga Club offer a membership program that regularly sends out seasonal outfits when customers commit to signing up for a year. This sort of marketing is a brilliant way to generate predictable revenue and build brand loyalty at the same time.
11. Implement a cart abandonment workflow to save would-be lost sales
We know firsthand that cart abandonment is a huge problem for most ecommerce businesses.
Thankfully, something as simple as implementing an abandoned cart workflow can plug up leaky sales funnels and win back sales. This likewise helps keep customers engaged with your business for longer, ultimately increasing their lifetime value as an added bonus.
Additionally, plugins like Deep-Data for WooCommerce can further dig into why people cancel orders or otherwise lose interest in an offer. From unexpected pricing to too many offers and beyond, you can learn how to better serve your customers in the future.
12. Consider rolling out premium, high-ticket offers in the future
Okay, we said earlier that growing your customer LTV is about much more than just raising your prices.
However, that doesn’t mean that you shouldn’t be afraid to offer some higher-ticket items and premium products.
We believe that business owners should get paid what they’re worth! You might be in a situation where a price increase might make sense for your storefront, but you’ll never know until you look at your data.
Maybe you want to phase out low-ticket items. Perhaps you want to focus on a specific segment of big-spenders.
Go for it! For the sake of reaching your revenue targets and understanding what people are comfortable spending, you need to keep a keen eye on your eCommerce analytics. Again, Sendlane’s dashboards can really help in that department.
What are you doing to increase your customer LTV?
At the end of the day, running a thriving business means increasing customer LTV and reducing customer churn.
Doing so is probably easier than you might think.
Tackling the tactics above one-by-one can help you build a better foundation for your eCommerce business.
And marketing automation makes a huge difference, too. With tools like Sendlane, you can figure out exactly which touchpoints your business needs to make and how they impact your customer LTV. This includes which offers work best, how often to send them, and what your best customers look like right now.
If you haven’t already, we invite you to take Sendlane for a spin and see all of our awesome marketing automation features in action.