Ecommerce analytics - CLV importance
Company and Product Updates, Conversion Rate Optimization, Customer Retention, Customer Value Optimization, NPS, Retention Rate Optimization, Reveal, RFM

Ecommerce analytics – CLV importance

Data. Data everywhere. If you’re in the eCommerce business (and since you’re reading this, you most probably are), you know that data drives everything. That’s why data-driven companies perform best and are also the most profitable. Now, there are lots of data points to collect from numerous sources but also lots of different eCommerce analytics tools that you can use to make sense of your eCommerce data. Today, we’ll be showing you what metrics you should focus on and how to process them in a way that helps you enhance customer experiences and, ultimately, increase your customer lifetime value.

Types of eCommerce metrics

If you want to succeed, you can’t go about leading your business by guessing what the next step should be. You need cold, hard numbers, and an accessible method to interpret them in a way that best suits your company. In your case, they will take the shape of metrics and KPIs- two measurements that will inform and guide your strategy. 

Conversion rate, retention rate, average order value (AOV), click-through rate, traffic sources, shopping cart abandonment- these are all relevant examples of eCommerce metrics. The list is way longer than that, with most metrics coming from your website and the marketing channels you use (Google, YouTube, social media, e-mail). It’s easy to get carried away and lose sight of your main objectives with so many numbers to track. Luckily, there’s a special methodology developed by Dave McClure that’s meant to make our lives easier.

It’s called the AARRR metrics model and it’s designed to help you grow and scale your eCommerce business without overcomplicating things. The acronym stands for:

  • Awareness
  • Acquisition
  • Activation
  • Retention
  • Referral
  • Revenue

It is especially effective because it follows the customer journey closely- from the channels that helped them discover you, to the moment they realize the value that your product/service brings into their lives, which leads to conversion. After that, the AARRR model allows you to monitor retention and referral– how many of those who signed up for your newsletter came back after a while to purchase a product? And out of those who turned from leads into customers, how many come back and repeat the purchase? How many people are you losing along the way? And how many of those who keep on coming back actually recommend your product or service to their acquaintances? 

These are the questions you’ll be finding the answers to. Finally, revenue is the decisive metric that will reflect the healthiness of your strategy. Once you get the answers to all the previous questions right, you’ll be able to optimize the whole process, improve the user experience on your website, increase the customer lifetime value and, ultimately, drive more profit.

AAARRR model

Here are some examples of metrics for each part of the AARRR model:

  • Acquisition: traffic source (where do your website visitors come from? Google search, Google ads, social media- Facebook, Instagram, LinkedIn, Twitter, Pinterest, etc.?)

But it’s not only about the visits- but also about what these potential customers do on your website. Traffic tracking in Google Analytics shows you the most profitable channels, based on the cost of acquisition and how qualified the lead is (according to the actions they perform on your website and whether they show the intent of buying something from you). Acquisition metrics will ultimately show you which channels you should prioritize, based on their performance and ROI.

  • Activation: newsletter sign-up, trial activation, downloads of various resources available on your website (guides, whitepapers, cheat sheets, etc.)

Every interaction that can eventually lead to purchase counts as activation. It is useful to follow your users’ trail and see how they consume your content, how they navigate through your website, and how much time they spend on each page (Hotjar is one of the best tools for visualizing your users’ on-site behavior). Additionally, you should also monitor the number of people who unsubscribe or those who never come back after activating the trial version of your product/software. This may pinpoint some inadequacies that prevent your users from converting. 

  • Retention: some people only buy from you once, others come back. But even for those who do come back, how can you predict the amount of time they are going to stick with you? Cohort analysis is the answer. Reveal is especially useful in this case, as it uses RFM (revenue, frequency, monetary value) segmentation to process customer data and show you the most valuable customer segments, as well as the least promising ones. These are the most relevant metrics to check out when you’re evaluating retention and thanks to Reveal, you don’t have to take them separately- they’ve been combined into a single measurement that helps you segment your customer base in a seamless, flawless way.

According to Outbound Engine, acquiring a new customer can cost 5x more than retaining an existing one. Moreover, increasing customer retention by as little as 5% can lead to an increase in profits ranging from 25% to 95%. This being said, retention is probably one of the most important eCommerce metrics to track.

  • Referral: the best way to keep track of referrals is to run referral marketing campaigns, where you invite your customers to recommend your product or service to their peers so that both parties receive a coupon or a discount code (this way, referrals are tracked automatically by the analytics tool you use).

But there are other ways to get referral traffic, such as word-of-mouth, which is more genuine and valuable in terms of quality, but harder to quantify and control.

In Google Analytics, the referral is not about people who get to you on their friends’ recommendation, it’s about the people who come to your domain from other websites (mostly social media platforms), without searching for you explicitly on Google. These website visits are usually the result of a social media marketing campaign and if you want your analytics tool to correctly monitor social traffic, the best way to do that is to add a tracking code (or link) to your campaign. 

Campaign URLs are widely known as UTM tracking links that have several pieces of code attached to them (called parameters that you need to track in order to evaluate the performance of your campaign). In this article, Hootsuite better explains how to effectively use these parameters and how to create and track UTM links for your campaigns. For now, this is all you need to know:

  1. Campaign source: the social network, search engine, newsletter, or any other source driving traffic to your website
  2. Campaign medium: the type of medium driving the traffic (email, paid social, organic social, etc.)
  3. Campaign name: this is pretty much self-explanatory- here goes the name of your campaign (Summer Sale, Back To School special offers, End of the season sale, and so on)
  4. Campaign term: it is used to track paid keywords or keyphrases
  5. Campaign content: this parameter helps you track different ads within the campaign (photo, video, banner, text ads)
  • Revenue: CAC (customer acquisition cost), CLV (customer lifetime value), revenue, and margin by customer type or by customer segment– these are the most important metrics to track. Obviously, you shouldn’t ignore the revenue brought by each product category: this will help you diversify your portfolio by getting rid of the “black sheep” and bringing in more of what your customers like.

Everything we’ve described so far in this article can be found in the analytics platform, but we’ve chosen to focus especially on CLV, since it is the most important. 

Customer analytics is also an integral part of the overall analysis – as the name would suggest. Still, because it’s more so qualitative than quantitative, it’s harder to integrate it into a standard analytics platform.

Fortunately, Reveal, the one-stop-shop for everything eCommerce, provides real, actionable, and ready-to-use customer insights.

Customer analytics

According to Toolbox, customer analytics is the process of studying customer data accumulated across departments in a company, for assessing, understanding, and interpreting customer behavior across the various stages in their buying journey. 

Essentially, it’s about turning these metrics and their values into easy-to-interpret, actionable insights that will actually paint a realistic picture of your ideal customer (and perhaps one of your worst possible customer so that you know whom you need to avoid- remember that your product and marketing efforts aren’t for everybody).

Here are some questions you’ll need to ask yourself; the answers are to be found deep within your analytics tools:

  • Who are my best customers? How often they buy from me, what’s the average order value, when was the last time they placed an order? (Here, Reveal’s RFM segmentation method will come in particularly handy.)
  • How do they get on my website? (Is it through social media, Google Ads, a newsletter, referral? This will also shed some light on their favorite communication channels.)
  • Where do they come from? (Demographics)
  • What stage of the customer’s life cycle are they in? (Cohort and Lifetime value analysis are the most relevant here.)
  • How do they interact with my website? (How long do they spend on each page, bounce rate, what are the pages they visit most frequently, how many times they visit the website before placing an order, possible roadblocks- it’s all about their on-site behavior and it’s useful to analyze it both for the sake of knowing your customers and for the opportunity to find clues that will help you improve your website and the user experience.)

Ecommerce tracking is not so powerful on its own: you need to couple data collection and interpretation with a powerful method to decode the meaning behind the numbers, a method that will help you tap into the consumer behavior and understand why the metrics you’re tracking look the way they do. Understanding the customer journey, the preferences of your audience in terms of marketing approach and communication will help you not only to expand your customer base but also to increase the lifetime value of each individual client.

Data collection

By navigating on the Internet we leave lots and lots of crumbs behind, just like Hansel and Gretel. All these crumbs are precious ecommerce data points that can be used by savvy companies in order to enhance the online experience of their customers and craft products and offers that better resonate with them and their lifestyle. 

Here are some very reliable methods for effective data collection:

  1. First-party data: from surveys, subscription and registration data, details provided by the customer to your customer support team.
  2. Use cookies and tracking pixels on your website: snippets of code that allow you to gather information about your website visitors’ online behavior- information that you can further use to target them with more relevant ads. 
  3. Transactional data: whether completed online or offline, a purchase also comes with an exchange of information- you offer information about your product, warranty, delivery, or price, while your customers express their preferences for a certain product, use a certain payment method, give you personal information for delivery or warranty activation, and so on. This kind of data is usually stored in your CRM (customer relationship management) system.
  4. Online marketing campaigns: remember what we told you earlier about social media marketing campaigns and tracking codes? They’re a valuable source of information, as long as you set the UTM parameters and the pixels correctly.
  5. Social media monitoring: this method is particularly useful for reputation management but you can actually find a lot about your audience by “listening” to the online conversations about your brand and industry. Sure, this isn’t quantitative data, you can’t quantify and analyze it the same way you would do with the website visits and the average duration of a session but it’s just as useful for your long-term strategy. Knowing the general attitude towards your brand helps you make better-informed decisions, create more relevant and personalized ads, and influence the conversation in a way that benefits both the public and the brand.
  6. On-site data: use surveys, heatmaps, and screen recordings to understand how users interact with your website. Hotjar is the go-to visual analytics tool. In their own words: traditional web analytics tools help you analyze traffic data. But numbers alone can’t tell you what users really do on your site; this visualization system will.

The importance of CLV and why Reveal is the best tool to monitor and improve it

The CLV is defined as the prediction of the net profit attributed to the entire future relationship with a customer. It’s an essential metric for eCommerce businesses as it tells a lot about the customer experience and the value of each customer over an unlimited period of time. Crazy Egg also argues that CLV tells you how well you’re resonating with your audience, how much your customers like your products or services, and what you’re doing right — as well as how you can improve.

You can calculate the CLV by using the following formula:

CLV = customer revenue – the cost of acquiring and serving that customer

As you can see, it contains two vital elements: the money an average customer spends in your eCommerce store, and the money it costs you to attract and serve that customer. Ideally, the value of the orders this customer places in time largely surpasses the cost of acquiring and serving them. But it’s not always the case. Sometimes, you get to spend more than a customer’s worth. In time, this will end up hurting your business and your profits.

This is why customer lifetime value is such an important metric: it allows you to see who your best customers are so you can focus your marketing efforts in the right direction. Now, you can get this value in your analytics reports, regardless of the platform you’re using. But what if there was a platform specially designed to reveal your best customers and help you nurture the relationship with them?

That’s the idea that led to the creation of Reveal- one of the most advanced Customer Value Optimization platforms that help e-commerce businesses with automated insights into customers’ buying behavior, segmentation, NPS, and lifetime value. Unlike other platforms, Reveal is a customer intelligence platform that combines the business analytics component with cohort analysis and customer voice monitoring, thus being one of the smartest solutions on the market. 

reveal revenue margin rfm group

Just integrate it with your eCommerce store, sync the data, wait for it to crunch the numbers, and prepare for the clearest, most actionable customer reports you have ever gotten. You don’t need to be an analytics guru or a skilled statistician to work with Reveal, as it is designed to help you better visualize information and to bring forth the most important insights for your business. That kind of insight might have remained hidden behind complicated numbers inside of any other analytics platform. 

Reveal helps you better understand the experience of your customers with your business and improve it if needed. It allows you to take a peek at their behavior, segments them according to your specific needs (because every business is unique and the best platforms are those that allow for great flexibility and personalization), and shows you who your best customers are. But the insights it offers aren’t limited to the biggest fans of your business; Reveal also helps you understand:

  • The profile of your ideal customer
  • What made people buy from you
  • How often they buy certain products
  • What made some of your customers stop buying
  • Which are the most important brands and product categories in your shop 
  • What customers are most likely to turn into brand advocates
  • Buying patterns & Assortment anomalies
To make the most out of this product tour, we recommend you to install the REVEAL app in your Shopify store. It takes less than 5 minutes, and you can follow along while looking at your own customer data.

Marketing performance

All these precious insights have one main goal: to help you grow your business. And, of course, to assist you in improving your marketing efforts. Once you gain in-depth knowledge about each customer category, you will be able to finetune your marketing campaigns and approach each segment that you choose to focus on in a more meaningful, personalized way.

This translates into a better ROI of your marketing campaigns and less wasted money when it comes to the advertising budgets you allocate. Ongoing personalization is the secret of top-performing companies. It’s a jungle out there: only those who know how to tailor their approach to the changing needs of their audience can thrive in today’s overcrowded markets. 

Reveal can help all the departments within your company work better and smarter: from the executives to the marketing team, customer support department, and product development team- everyone can benefit from the insights it provides. As metrics turn into visualizable insights, marketing efforts become more coherent and better directed towards the end goal, KPIs get easier to reach, and customers will experience higher levels of satisfaction. Which- you guessed it!- will increase their lifetime value, because they will keep on coming back to you and spending more and more money with you.

Final words

It’s good to be data-driven. But it’s so hard to understand which are the best metrics to focus on depending on your profile, industry, and size of your business. And it’s even harder to interpret that data in a way that actually helps your business. We have reviewed the most important metrics to follow according to the AARRR framework, we have briefly explained why they matter, and, finally, we have discussed the significance of customer lifetime value (perhaps the most crucial metric you should follow if you want to grow your business in a healthy, sustainable way).  

If you want to unlock the power of real, actionable insights, come see Reveal in action and try it for yourself: it’s FREE until 31st of December for Shopify Stores and has a 30 days free trial for other platforms.

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