CLV is a key business metric that presents a projection of the net value of your entire future relationship with a customer. In other words, you can estimate how much profit you can expect from a specific customer or a customer group.
Based on that information, it is very easy to allocate your team efforts, marketing expenses and channels toward the most profitable customers.
It is very important to understand that CLV is a holistic metric. You should integrate data from all your teams. Based on the analysis you have to build up a strategy and then spread it back throughout the whole organization.
As the insights that CLV provides are in the heart of budget and strategy adjustments, which result in better ROI, business growth, and customer loyalty, CLV is often called “the optimization metric”.
Customer Lifetime Value is the KPI that empowers companies to become truly customer-centric as it takes into consideration the individual preferences and behavior. In that way, the marketing communication and actions become personal and timely.
How To Calculate CLV In eCommerce
There are many possible calculations. You can use simple formulas to just snapshot what is your state with CLV or make more complicated projections.
In case you are new to CLV, I can suggest that you start simple:
CLV = CV x T = AOV x F x T
- Average Order Value (AOV) = Total Revenue / Total Number of Orders
- Purchase Frequency (F) per customer per Year = Total Orders per Customer / Unique Customers
- Both average order value and purchase frequency give you the customer value of your average customer in the measured period of time – the Customer Value (CV).
- Customer Lifetime (T) = time (years) before a customer churns. This is usually a period of two to three standard deviations of the average time between purchases. It could result in something in the lines of 1 – 4 years.
You can use this spreadsheet CLV calculator and try out the formula right away. Also, you could check out this step-by-step guide to set up CLV for Magento stores, if you’re using Magento for your store.
Remarketing For Customer Lifetime Value Uplift
Remarketing is a technique that is used to re-target people who left your website and did not complete an action (a goal conversion like making a purchase for example).
Remarketing helps you to engage, activate and re-recover any customer activity with your website. It has a direct impact on improving your marketing ROI and company goals like revenue, AOV, repeat purchase rate and customer lifetime. Thus, it also benefits the Customer Lifetime Value.
Try out two strategies and conduct them simultaneously.
1. Transactional Emails
Include automatic transactional emails in your retention and activation strategy.
What might be the events that trigger an email?
- When a customer leaves a product in the shopping cart without finishing the order.
In this case, you can send out one recovery email to remind the website visitor about his product that has been left out in the shopping basket.
You can include also complementary or similar product and maybe add a discount for this order in particular.
Another approach is to set up a series of 3 follow-up emails. Start with a reminder message shortly after the item has been left behind. On the next day, you can send a second email offering a small discount. If that does not lead to an action, you can try with a last email message including slightly bigger discount with a time limitation for that offer.
- When a product was added to a wish-list or the customer tried to buy it, but it ran out of quantity before they could made it to checkout.
Send out an email in the moment when this product is in stock again. It is possible that you also include complementary products.
In case there is no stock re-fill, you can engage the customer with emailing him an offer with a similar product and maybe add a discount for this purchase.
- When a customer has not purchased for some time or you want to boost loyalty within your top spenders.
You can send an email with a personalized set of products that match the customer buying history and buying behavior.
You can target segmented groups (that differentiate by behavior and by value) with customized messages and discount policies. Note that it is CLV data that actually gives the right insights for online retailers to segment smartly:
For example, you can create an email campaign for your top 10% spenders that haven’t purchased anything for half a year and send them an email with a few products that match their taste and maybe offer a discount.
Tip: It will be nice that those products are part of a limited selection. In that way you are offering a premium access for your VIP customers.
What is the technology behind transactional emails?
There are different automatic self-service tools that automate the email marketing for you. They gather information through cookies. The data is in storage and different machine learning and predictive technologies trigger customized engagement actions and messages. These technologies become more precise in time and there are solutions that automate the process so that you can scale endlessly.
Small tricks to pay attention to:
- Use responsive email templates and providers.
- Include optimized and HQ pictures.
- Stay cool and use plain, straightforward language.
- Do not spam.
- If possible, let the customers manage their email preferences.
- Use catchy but short subject lines.
- Include emojis and social sharing buttons.
2. Dynamic Retargeting
It is a technology of engaging with your past visitors by displaying them products they have visited on your website or suggest similar ones that might match their taste. These types of ads are dynamically created based on user cookies and are visible on websites that the customer visits after leaving your website.
When can you use dynamic remarketing in eCommerce?
The events are very similar to those that trigger the transactional emails. You can re-engage website and cart abandoners, previous buyers or specific product or selection page visitors.
Similarly to the emails, you can display the customers the same items they have been browsing through or show them similar or complementary offerings.
What is the technology behind the dynamic retargeting?
Google, Adroll and Retargeter are one of the most popular tools for dynamic retargeting. Google dynamic remarketing pixels are similar to the cookies because they also track who has been to a specific website, what pages they visited. It also compares similar customer behaviors. It allows marketers to select different customer variables which they want to track – products (items, SKUs, price, etc.), categories, brands, etc. and then retarget the buyers with that data at hand.
You can see how to set up a dynamic remarketing campaign here.
Dynamic advertising and automatic personalized marketing solutions bring customers and brands closer. Also, they help online businesses grow through uplifting their most important KPIs – AOV, Retention, Repeat purchases, Revenue and Customer Lifetime Value.
Remember that repeat customers spend +67% in comparison with new customers. Brain & Co. also discovered that an increase in the customer retention rates with only 5% uplifts the profits by 25% to 95%.
Enjoy the journey!