As the global e-commerce market steadily increases market share, businesses are realizing the need for a different form of thinking. Businesses lack the procedures for customer retention as well as attracting new customers. In the fast-evolving e-commerce arena, sites need to be fully and precisely aware of who their best customers are and the value that they can deliver over the years. The metric that delivers this comprehensive insight is Customer Lifetime Value(CLV). CLV homes in on the most critical value for a company which is that of a customer’s long-term potential.
Customer Lifetime Value
Many industries lack a holistic strategy that incorporates the best of marketing, customer experience and customer nurturing. This leads to a low CLV. CLV represents the revenue a customer potentially brings in over the years. There are a number of ways to arrive at the CLV of a customer. The basic variables that make-up CLV are Recency, Frequency and Monetary Value(RFM). Recency presents your customers based on how recently they made a purchase. Frequency presents your customers based on how often they make a purchase from you. And Monetary Value presents your customers based on the value of the purchase they make. The ordered values assigned to these data points can create a scoring grade for all your customers. You can create different categories based on different values of the RFM scale. With RFM, you have almost all that you need to begin deducing the Customer Lifetime Value.
Follow the steps to calculate CLV.
1. Total up the value of all the sales.
2. Calculate Average Order Value (AOV). AOV = Total Sales/Number of Orders.
3. Calculate Frequency. Frequency = Number of orders/Number of Customers.
4. Get Customer Value. Customer Value = AOV x Frequency.
5. Get CLV of a customer. CLV = Customer Value x Active Lifetime of Customer. Active Lifetime of Customer is the timeframe in years or months a customer has been active on your site.
(If you are looking to calculate CLV of customers in specific categories, it is possible to do so by using values for just that category.)
With all of this information, an e-commerce business must then set out its budget for marketing, taking into account the potential returns. A clear roadmap is available for an e-commerce store that works with the CLV metric. CLV calculation shows that the Average Order Value is a crucial variable. Work on discount and check-out offer strategies to influence customers to increase their order amounts.
In terms of customer engagement, there are many ways to keep talking and building a close relationship with customers.
Listen to your customers
Keeping track of what is going on in Social Media is very important for an E-commerce business to find out what customers think. Engaging with customers and enabling the product to be transmitted through word-of-mouth on social media greatly reduces the acquisition costs that eat into CLV.
When a brand builds up and delivers its messaging (marketing) with a well-defined strategy and one that is broad-based, customers will always be interested. This is in contrast to a business that is reactionary and wakes up in fits and starts with what needs to be done to drive consistent customer traffic.
Keep making the relationship better and better
As customers continue with their purchases at your store, make sure that you make them feel they are getting increasingly better offers. Customers need to feel that they are continually progressing to a stronger and more valuable relationship with your business.
Site Load time
This must be on the top of the list of winning new customers. After having done all the hard work to bring customers in, slow page-load times will be a big disincentive especially so at Checkout. A faster and simpler checkout process is important in increasing CLV.
With the CLV-based method of categorizing customers, numerous insights can be derived in terms of marketing campaigns. With the conduct of each outreach, predictive CLV provides a way of discovering the impact of the campaign and what needs to be done to improve it.