We all love that moment we start pumping out a stunningly targeted campaign and watch as the sales to our online store start rollin’ in. What a rush!
Customer acquisition is a vital part of the eCommerce ecosystem. Still, its ever-rising costs mean that putting all your proverbial eggs in the acquisition basket is neither wise nor a sustainable course for growth.
If you want to be in this eCommerce game for the long haul, then customer retention is where a big part of your focus should be. One of the best metrics for measuring how well you’re doing in CLTV.
What is CLTV?
CLTV stands for "Customer Lifetime Value". It is a marketing metric used to estimate the total value a customer will bring to a business over the entire duration of their relationship with eCommerce. In other words, it is the amount of money a customer is expected to spend on a business's products or services over their lifetime.
How to calculate CTLV?
To calculate CLTV, businesses typically consider a range of factors such as the average value of a customer's purchase, the frequency of their purchases, and the expected length of time that they will remain a customer.
By calculating CLTV, businesses can determine the amount of money they can afford to spend on acquiring new customers and retaining existing ones, which can help them make more informed decisions about their marketing and customer acquisition strategies.
You can use the following formula:
CLTV = average order value (AOV) x number of repeat purchases (N) x average customer lifespan (ACL).
- Average order value (AOV) is the average amount of money a customer spends on each purchase.
- Number of repeat purchases (N) is the number of times a customer is expected to purchase within their lifetime.
- Average customer lifespan (ACL) is the average amount of time a customer is expected to remain a customer.
Here is an example of how to use this formula:
Let's say you own an online clothing store, and your AOV is $50. You expect your average customer to make three purchases per year, and you expect the average customer lifespan to be four years. Using these numbers, you can calculate your CLTV as follows:
CLTV = $50 x 3 x 4 = $600
This means that, on average, each customer is expected to bring in $600 in revenue throughout their lifetime.
Top 7 CLTV marketing strategies for eCommerce
When it comes to CLTV, there are numerous factors at play. Everything from a consistent customer experience to customer loyalty and personalization has a hand in the work of boosting that four-letter metric.
We call this the CLTV flywheel.
Based on the CLTV flywheel, we’ve put together seven strategies to help you increase CLTV, which will boost revenue, lower acquisition costs, and keep your store cruising onward and upward!
1. Create email marketing segments
Email segments are vital for all eCommerce email marketing, yet so few brands spend the time to create them. This strategy is first on the list because it’s crucial for building momentum to raise CLTV over time.
You can build many profitable email segments, but no matter what industry you’re in or your audience, there are five email segments every brand should have.
The CLTV Segment
Since the name of the game right now is to help you, a digital retailer, increase your customer lifetime value, then this is where you want to start.
Generally, if you want to figure out where your CLTV sits, you have to do some math:
1. Calculate your average order value (AOV) by tracking down total sales (preferably subtotal amount) and the order count. Divide those two numbers to find your AOV.
2. Calculate purchase frequency by finding your total amount of customers and total orders. Divide those two numbers to have your purchase frequency.
3. Find your customer LTV by taking the new total from your AOV and purchase frequency and multiplying them.
While the CLTV segment doesn’t generate an exact calculation for you, it gives you the ability to find and gather customers with lower CLTV versus higher CLTV.
To use this strategy correctly, I like to recommend you create 4-5 CLTV-based segments. To start, let’s say that your current CLTV is roughly $100 (that’s low, I know, but bear with me), so your segments can look like this:
- CLTV Segment 1: Customers with CLTV less than $50
- CLTV Segment 2: Customers with CLTV greater than $50 and less than $100
- CLTV Segment 3: Customers with CLTV greater than $100 and less than $150
- CLTV Segment 4: Customers with CLTV greater than $150 and less than $200
- CLTV Segment 5: Customers with CLTV greater than $200
The average order value (AOV) Segment
You can find your brand’s AOV by dividing total revenue over total orders. But if you want to know what the AOV is for specific customers and dig up some yummy data there, you need AOV email segments.
Creating segments for AOV categorizes your customers differently than CLTV and gives you some more precise insight into how your audience spends and what sort of campaigns may warrant better ROI.
The Products Purchased Segment
This segment is probably one of my all-time favorites because you can heavily utilize personalization and product recommendations.
In particular, product recommendations significantly impact CLTV, with studies showing that they can impact revenue by 369%. This segment works by using a tag you’ve created to correlate with a purchase.
The Number of Orders Segment
Segmenting by the number of orders people make is another excellent list to create because it gives you a clearer view of your customers’ purchasing behavior while also being used to increase purchases.
Generally, those who purchase more from you tend to be more loyal customers and often have a better CLTV. A segment that contains contacts with a decent amount of orders gives you a quick list of some VIP customers more likely to open, click, and buy.
The Interests and Preferences Segment
This type of segment uses tags to organize and sort your contacts. Within your emails, you can create tags for links, images, and within your copy content.
When using tags, you should do your best to be strategic because you’ll use them to create your interest-based segment.
So, for example, if you’re a health brand, your site categories might include diet-specific interests like gluten-free or keto. Your email tags can mirror those categories to make it easy to segment your contacts and understand what each segment involves.
After you create the tags, you can create a segment for each tag. Then, as your contacts click on links from emails, they’re automatically added to the list of the tags they clicked.
2. Design your post-purchase email funnel
80% of your future profits will come from just 20% of your existing customers. So the efforts you make after this purchase will have a considerable impact on your customer LTV.
There’s no right or wrong way to create a post-purchase funnel, so instead of giving you one single flow to follow, we’ll cover some ideas regarding setting things up for long-term success and for what your funnel could contain.
Below, we’ve put together six emails you could potentially incorporate into your funnel and an example of how you could design that funnel.
1. Loyalty program invitation
71% of rewards program members say that their membership plays a vital part in their purchases and relationship with that brand.
If you have a loyalty program, then inviting first-time buyers or new contacts to join the program will work hand-in-hand with your CLTV goals.
This example from Fabletics features a simple design and straightforward copy for their email invite.
2. Thank you
Social niceties still apply in email marketing, so saying ‘thank you’ to a customer for their purchase is always a nice touch.
Your thank-you email could be a singular campaign that includes an intro to your brand and what you do. Or it could be a 2-in-1 type of email like this one from AllBirds, which is both a thank you and an order confirmation email.
While this email type may not directly impact CLTV, the subtle human touch of appreciation is often reciprocated, so it’s worth considering adding somewhere in your funnel.
With a cross-selling email in your funnel, you can offer a product that complements the product that your customer purchased.
Harry’s email is an excellent example of how to execute this well. They offer a subscription for high-quality razors and then cross-sell the customer shave gel and moisturizer — two things that complement the product and fill a customer’s need.
You don’t need to offer subscriptions to make this type of email work for you. If you dive into your brand’s purchase data or talk to your team’s customer-facing side, you may find that there are patterns in what people purchase together.
4. Discount for next purchase (email or SMS)
Following up on a purchase with a discount offer is another way to nab more sales. They work to turn one-time purchasers into repeat buyers and help customers with a lower CLTV convert again.
Depending on your funnel, you could send them an email with the discount or weave SMS marketing messages into your flow too. People are more likely to open a text message right away, and many make purchases through their phones, which makes sending discounts and other promos via SMS an excellent option for your funnel.
But, of course, you can’t go wrong with a tried-and-true email like the one that Bombas uses. In this example, they manage to mix both a thank you and a discount into the email, which is smart to get more bang for your buck when it comes to funnel messaging real estate.
5. Personalized product recommendations
Increasing CLTV can be as simple as recommending another product to gain your customers’ interest.
This is one reason to build out segments around tags because not only can you use product recommendations in your post-purchase funnel, but you can use them in individual campaigns to that segmented audience.
When the offer tailors to your customer’s purchase, it increases the chance for an additional purchase and boosts email-driven revenue.
6. Review or Feedback Request
Why ask for a review? Two reasons:
- To find areas in touchpoints and products that people love
- To discover areas for improvement in both your CX and products
It’s a win-win no matter which way you look at it!
3. Create recurring revenue through product subscriptions
Since increasing CLTV is the name of the game, it’s worth your time to consider adding a subscription model to your brand.
Not every digital retailer can indeed add subscriptions to their offering, but there’s a lot of data on the benefits of using subscriptions:
- Practical eCommerce ran a study that found subscriptions increased customer lifetime value by 1.78X (source)
- In 2020, 69% of Americans had 4+ subscriptions; 27% globally stated they plan to increase their subscriptions. (source)
That’s just the tip of the iceberg. Subscriptions are a unique way to increase revenue per customer, thus impacting CLTV. Even if a subscriber cancels after six months, you’d still be driving recurring income that’s lost otherwise.
There’s a decent amount of strategy that goes into creating subscriptions. Below we’ve included some tactics to help make the most of your hard work while building up customers’ lifetime value.
Generate desire by touting the benefits of subscribing to products
People don’t naturally desire to subscribe to your products. Why should they? They have no reason to. Unless, of course, you manage to give them great reasons for doing so.
The easiest way to create a desire in your customers’ minds and hearts is to list the benefits of subscribing that appeal to their decision-making process’s emotional side.
If you’re not sure where to tout the benefits for your audience, just make a note here: Saving money, personalizing the product, and eliminating worries that come with subscriptions are three areas to start.
Having a landing page that lists those benefits with a CTA to sign up could be worth the effort too. Whatever way you choose to go, making the benefits of subscribing straightforward and easy to come across in marketing touchpoints will do you good.
Offer subscriptions on product pages
Offering the subscription on your product pages that support subscriptions is critical.
This seems like an obvious step, but it’s worth noting. You can see from this example from Dr. Axe how a well-placed subscription offer can benefit your conversions.
Here, you see a side-by-side comparison of a one-time purchase and subscription. The copy is designed to speak to the benefits of subscribing.
Examples of this are as follows:
• Subscribe & Save
• 15% off + free shipping
• Subscribe Now for the CTA
Seeing the comparison of price plus the benefits helps convert more into subscribing. Many third-party tools make implementing subscriptions straightforward, so don’t let the tech side of things hold you back.
Create an email segment for subscriptions customers
Email segments are the foundation of personalization, and personalization is where better experiences and more conversions happen.
By creating a segment for every subscription customer, you can help personalize the content for them to create a better customer experience.
Ones placed in these segments could receive unique email campaigns dedicated just to them.
For instance, you could send them early releases or member-only deals to keep them constantly engaged and experiencing the value of what you’re offering as part of the subscription.
Add a postpurchase email that offers subscriptions
You can take advantage of your post-purchase funnel to boost subscription conversions, too.
You could simply add an email to your post-purchase funnel that made customers aware of your subscriptions.
For the products that offer a subscription, consider creating a tag for those purchases. Then, build a segment for those customers to be placed.
From there, you can have anyone added to that segment trigger an automation with a series of post-purchase emails or a simple SMS sequence that offers the subscription to customers.
4. Provide a consistent post-purchase customer experience
No matter how great the end product is, lousy service can ultimately ruin the entire experience.
One of the easiest ways to frustrate customers after a purchase is to go radio silent.
The best way to provide a consistent post-purchase experience is to automate two transactional type emails:
1. Order fulfillment
2. Shipping/tracking info
These messages are generally different from the post-purchase funnel mentioned earlier in the book, but take note that they do work hand-in-hand with providing an excellent customer experience that keeps people coming back and lifts your CLTV.
You can set these up and send them via email, SMS, or a combination of both.
That can all be a fully automated process that you can pretty much set and forget while still offering customers the experience they want and deserve.
With that being said, as consumers, you and I both understand that after an online purchase, we want to know quite a few things after we placed an order:
1. Confirmation that our order went through and was received.
In this example from Moment, the transactional order confirmation email also includes images of the products purchased.
2. When our order ships with an arrival date and tracking info now that it has shipped.
The CTA “Track My Package” does the job here.
3. Updates when an order is delayed.
Sometimes things throw off an order’s arrival, and it really can’t be helped. Even so, Moment does a great job of acknowledging the setback, explaining what’s up, and smoothing it over with a discount even though the delay wasn’t their fault. This effort moves the needle in the customer’s experience, and the discount offered will likely boost CLTV.
5. Incorporate user-generated content into customer experience
One of the hands-down best ways to increase trust is through the use of social proof — usually in the form of user-generated content and reviews.
Instead of you saying what makes your brand so great, let others do the hard work of speaking your accolades about your products, experiences, and all the brand-loving goodness.
This type of social proof can be woven throughout your entire online presence, including your website and emails. Below are a few helpful tips to get things going.
Start Collecting Reviews & Find User-Generated Content (UGC)
To find and collect social proof, you’re going to need a bit of help doing it. There are many third-party tools available in the market that can help you collect reviews and find content online posted by your customers.
Tools that scour Facebook, Instagram, and other platforms can help you find UGC to use as trust-boosting social proof.
Collect Feedback with “Review Request” Emails in Post-Purchase Funnel
Without investing anything extra, like you would have to with those third-party tools, one straightforward way to start collecting feedback or reviews is to ask for it via email.
An even easier way to do that is to add a review request email to your post-purchase funnel, thus automating this process for you.
Weave Social Proof Into Your Entire Online Presence
After you’ve done the work of collecting reviews or finding UGC, it’s time to put that to good use. There are a few essential areas to place reviews and UGC:
- Product pages: Users come to pages with items they want to buy, but they want to know what others think about them. Don’t make them go elsewhere. Put your reviews right there for them to read.
- Social media posts: You can take reviews or user-generated content and turn them into an Instagram or other social media post to help boost trust in your audience there.
- Email funnels and campaigns: You can ask for reviews through email, sure. But you can also use reviews and UGC in your email funnels and campaigns to help convert reluctant buyers.
6. Sprinkle in personalized SMS marketing
SMS marketing can play a crucial role in getting people to engage and purchase. And stats show that customers like having SMS as a touchpoint.
MobileMonkey found that “64% of consumers think businesses should contact them via text messages more often” and “75% of consumers want to receive texts with special offers.”
There are many ways you can start using SMS marketing, but when it comes to raising CLTV, there are a few ways you can use it to reach your goals.
Use SMS in your abandoned cart funnel
You can build your abandoned cart funnels in a million different ways. But here is an example to give you an idea of what you can do.
Always remember to set the “Goal” of your abandoned cart automation to “Purchase Made” so that the funnel stops when the person converts.
Use SMS for promotions to VIPs
You can use SMS marketing to send promos to all your contacts, but when you have segments of contacts with high AOV, a higher number of orders, and so on, you can target them with personalized messages.
You can create an SMS-only campaign for your desired lists with special offers rewarding them for their loyalty. If you want something automated, you could create a funnel that’s triggered to send an SMS message with a special discount as a thank you after someone has moved from your low number of orders segment to the higher segment.
Use SMS in triggered automations
We’ve covered using SMS in abandoned cart funnels, but it’s not the only way you can use it. There are many automations where you can place SMS messages.
Here are a few to consider:
- Transactional funnel (i.e., order received, tracking info, etc.)
- Post-purchase funnel (SMS discount)
- Personalized product recommendation funnel
- Re-engagement funnel
- New product launch
- Subscription charge reminders
7. Lift CLTV with cross-selling & upselling tactics
In particular, cross-selling and upselling are product recommendations proven to increase revenue by as much as 30%.
That’s huge and worth the effort! You can incorporate either one of these product recommendations into many customer touchpoints and funnel automations.
Here are some examples to help get you off on the right foot.
Upsell & Cross-Sell In Your Checkout Process
As part of the online shopping experience, you can use the process customers go through during their purchase to add a revenue boost by merely recommending products.
Amazon offers a cross-sell on certain products, as shown here. You can add on product protection you probably didn’t know about before they offered it.
You can see other brands doing similar things by cross-selling other items that complement the product being viewed. You can take a lesson out of their playbook and do something similar.
Keep in mind that you also can upsell here as well.
Upselling essentially means offering the better version or better deal on a product that someone is considering purchasing.
For example, if you’re selling health-related products, you might upsell a product bundle to someone considering just a single item. They spend more but end up saving more than buying them all separately, which is value for them and a nice CLTV boost for you.
Upsell & Cross-sell in Email Automations
The next best place to use this strategy and see good results is email marketing. Email is still a leading driver in eCommerce revenue, and personalized product recommendation plays a significant role.
To keep things simple at first, take a look at the current automations you have running and determine where you could easily tuck in a cross-selling or upselling email.
Personal care brand Harry’s uses their post-purchase funnel to cross-sell their shave gel.
Depending on what your brand offers, there are options to upsell as well.
A post-purchase isn’t the only place where you can add these. Your abandoned cart funnel or your segmented lists make great email real estate for these types of emails.
Maximize CLTV with Sendlane
Ultimately, managing a thriving business entails augmenting customer LTV and diminishing customer attrition.
This goal may be simpler than anticipated. You can establish a stronger groundwork for your eCommerce by addressing each tactic individually.
Marketing automation also plays a significant role in this process. Utilizing tools such as Sendlane can assist you in determining the essential touchpoints for your eCommerce and how they affect your customer LTV. This encompasses identifying the most effective offers, optimal frequency of communication, and characteristics of your top customers.
If you have not already, we encourage you to try Sendlane. Check us out for free for 14 days!
Customer lifetime value maximization FAQs
Why is CLTV important for marketing?
CLTV is important for marketing because it allows businesses to better understand the value of their customers and how much they should be willing to spend on acquiring new customers. It also helps eCommerce to identify which customers are most valuable to their business and which ones they should focus their marketing efforts on.
How can businesses measure CLTV?
Businesses can measure CLTV by calculating the average purchase value, the purchase frequency, and the customer lifespan. The formula for CLTV is:
CLTV = (Average Purchase Value) x (Purchase Frequency) x (Customer Lifespan)
The customer lifespan can be calculated by dividing the average customer retention period by the customer churn rate.
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