Ecommerce Growth

Why any e-commerce marketer should monitor the Customer Lifetime Value

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I am from Eastern Europe, the Balkans more exactly. After going back and forth in Northern Europe, I’ve noticed that we are somehow much more oriented to act, rather than to plan. Looking back at my previous companies, I’ve noticed that we’ve always had this urge to act after we’ve come up with some interesting ideas, disregarding the fine-tuning process before acting, the unseen barriers and the hidden resources to do it.

I presume that here, in the Balkans, we spend less than 15% planning and 85% acting on a project. Swedish people, on the other hand, spend more than 30% of the total time with planning every step and resource they need. Though, Turkish people seem to be much more willing to act than we, Romanians, do.

The major benefit of calculating Customer Lifetime Value – CLV – and monitoring it is the insights about customers and its role in segmentation.

Simply explained, the Customer Lifetime Value is the total earnings you are generating from a customer in his entire lifetime. There are several ways to calculate it, depending on your goals and business model. After running this effort, you can also find out other variables values like DBT (days between transactions), the average retention rate, orders per year, etc.

Here are 5 reasons to calculate CLV:

1. Decide how much to spend to acquire a new customer based on your earnings – you’ll be able to adjust your marketing budget based on real data and to grow your client’s base more rapidly.

2. CLV allows you to calculate derivative performance indicators such as ‘Time between purchases’ which helps you to segment and address only to the customers that haven’t bought something from you in the average timeframe you have already established.

3. Re-engage customers who used to be high spenders and haven’t bought something in the last 2 years.

4. Find out common characteristics of your top customers, the ones that you spend your most time & efforts on. RJ Metrics stated in its e-commerce benchmark that

“Half of all revenue comes from the top 15% of customers, with the top 1% of customers spending 30x as much as the average customer.”

5. Generate ideas to increase the repeat purchase rate: it’s better to have 100 buying customers monthly than 500 customers that are buying yearly.

Above all of this, you’re not going to look like Joey when you’ll check your ROI. 😉

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