Customer Value Optimization (CVO): The 9-Step Methodology

Customer value optimization (CVO) is the process of improving customer lifetime value through customer experience, acquisition and retention strategies. It is an ongoing process that starts with an analysis of your customer database and ends with better acquisition strategies, branding, messaging and website performance. The CVO methodology turns that process into 9 steps, and it will change the way you look at your business. It asks for patience, but it pays off in the long term.

This guide explains each of the 9 steps, the KPIs to watch, and how CVO differs from conversion rate optimization. Omniconvert Commander (formerly Nexus), the AI eCommerce growth engine, runs the data side of the methodology: customer lifetime value, RFM segments and True Profit per customer.

What is customer value optimization (CVO)?

Most eCommerce teams measure growth one order at a time: traffic, conversion rate, average order value. CVO measures it one customer at a time. The question changes from "how do we sell more this month?" to "how do we make each customer worth more over the whole relationship, and how do we find more customers like our best ones?"

The central metric is customer lifetime value. Customer lifetime value is defined as the total value a customer brings to your business across their whole relationship with you. You can calculate it from average order value, purchase frequency, customer lifespan and margin (the CLV formula and calculation page walks through each input). CVO works on every one of those inputs at once.

Retention carries most of the weight. Bain & Company found that a 5% increase in customer retention produces more than a 25% increase in profit in financial services [Bain & Company, 2001]. Harvard Business Review notes that, depending on the study and the industry, acquiring a new customer is five to 25 times more expensive than retaining an existing one [Harvard Business Review, 2014]. A business that grows customer value earns more from the customers it already paid to acquire.

For a short introduction in video form, watch Valentin Radu explain how to nail customer value optimization on eCommerce Tech. For the academic models behind customer-base analysis, read about Peter Fader and customer centricity and Bruce Hardie's customer-base models for CVO.

CVO vs CRO: what is the difference?

Conversion rate optimization is defined as the practice of increasing the share of website visitors who complete a desired action, such as a purchase or a sign-up. It works on pages, offers and flows, and it reports results per visitor. CVO uses the same discipline of testing, but it applies it to the whole customer relationship and to every department that touches the customer.

The two work best together. CRO finds out what makes a visitor convert. CVO decides which visitors you want to convert in the first place, and what happens after their first order. A test that raises conversion rate by attracting one-time bargain hunters can look like a win in CRO and a loss in CVO.

The CVO methodology: 9 CVO steps at a glance

Each step uses the output of the step before it. The research steps tell you who your valuable customers are and why they stay; the last three steps turn that knowledge into campaigns, tests and personalized experiences.

1. Change the way your company defines "success"

   Make customer value a company-wide measure, not a marketing KPI.
2. Monitor CLV and the KPIs that are affecting it

   Track customer lifetime value, retention, RFM distribution, margin, stickiness and customer experience.
3. Carry out qualitative research for each RFM group

   Ask each group why it buys, why it stops and what stands in its way.
4. Find customer anomalies

   Spot what makes one group different: brands, categories, cities.
5. Find your ICP by doing RFM segmentation and analysis

   Combine quantitative and qualitative data into an ideal customer profile.
6. Optimize Customer Journey Mapping

   Map every touchpoint as it is today and find what works and what does not.
7. Developing the retention strategy

   Design the journey as you want it to be, phase by phase.
8. Ongoing optimization

   Keep testing loyalty, referral, acquisition, cohort and website changes.
9. Build ongoing personalization campaigns across all channels

   Give each segment an experience that matches its value.

Step 1: Change the way your company defines "success"

Each company has its own way to measure success. The key is to understand that growth does not mean checking growth-generating factors every day. Your revenue might look fantastic in the profit and loss statement, but if you do not listen to customer feedback through qualitative research, and watch your customer retention KPIs through quantitative research, you miss opportunities that benefit your business in the long run.

Remember that customer value is a company-wide measure of success and not a marketing KPI. To fully understand it, determine the impact of customer retention on your business and teach its importance to your employees as well, for example in an interactive workshop. They are the ones who deal with the customers, so they should be on board with the changes in company culture.

Step 2: Monitor CLV and the KPIs that are affecting it

Customer value optimization starts with an analysis of how your customers perform, and with insights that improve the entire customer journey. The customer journey has five stages:

• Awareness: the customer finds out about you.
• Consideration: the customer compares you with alternatives.
• Purchase and reception: the customer orders and receives the product.
• Retention: the customer comes back and buys again.
• Advocacy: the customer recommends you to others.

Online businesses monitor the top of the funnel too much and the bottom too little. When you focus on retention and advocacy, you improve the other stages as well and create an organic flow. Customer lifetime value monitors the performance of the last two stages, but it also reflects the health of the whole business. These KPIs influence it, in no particular order:

• Customer experience (product reviews, Net Promoter Score, Customer Effort Score)
• Customer retention rate
• The RFM distribution
• The margin
• Cohort stickiness
• New customer stickiness

RFM distribution

You need to segment your customers to discover your valuable ones and see how they change over time. With RFM, short for recency, frequency and monetary value (see what RFM is), you build and target groups of customers with messages that fit their behavior. The result is more loyalty, which means a better customer lifetime value, and higher response rates.

Base the groups on the Average Days Between Transactions and on how your customers distribute across recency, frequency and monetary values. Then decide the number of groups, the score levels (from 1 to 5) and the components of each RFM group. The RFM segmentation guide explains the scoring in detail. RFM segmentation can split your customers into these groups:

Here is a typical use case. You look at your customers as one big group and treat them all the same way. Somewhere in that group are customers who are about to forget your brand, and you still have one last chance to engage them again. RFM finds that group for you, so you can send it a re-engagement campaign before it is too late.

Margin

An RFM analysis also shows customer anomalies that tell eCommerce managers which customer groups matter most once they weigh the customer acquisition cost against the margin each group generates. After their first RFM segmentation, many eCommerce owners see the Pareto principle in their own data: a small share of repeat customers brings most of the margin. That raises the next question: what happened to the other customers? To see profit at this level, calculate True Profit per customer, after product costs, shipping, returns and marketing.

Customer experience

Customer experience can seem hard to measure. These KPIs give you enough clarity about your store's performance:

• Product reviews: watch what people say about your products, and make the monitoring a habit.
• Product returns: a high return rate points to a problem with the products or to too little information about them.
• Resolution rate: how well your support team resolves customer problems.
• Net Promoter Score: send an NPS survey before and after delivery to see whether customers are satisfied with your product or service.
• Customer Effort Score: how hard it is for a customer to use the product, find information or solve a problem.

Customer retention rate

Customer retention rate measures the share of your existing customers that you keep over a period. Calculate it periodically: it tells you whether you nurture your customers well and target the right people in your campaigns.

Do not confuse it with repeat purchase rate, the share of all customers who placed more than one order. Many eCommerce dashboards show repeat purchase rate under a retention label. The full comparison is in repeat purchase rate vs retention rate vs churn rate. A retention rate that rises over a year means more customers came back and placed at least one more order.

New customer stickiness

With cohort analysis, you discover which campaigns brought you repeat customers over time and which brought only one-time purchases. It is an essential acquisition report that every eCommerce store should monitor. Group the customers by the month and campaign that acquired them, then follow each cohort's cohort retention rate for a year.

Compare two campaigns from different months. If one cohort keeps a visibly larger share of customers who return to your store to buy again, study the targeting behind it and put more budget into the strategies that bring you more repeat customers.

If you skipped ahead, start with what customer value optimization is, the 9 CVO steps at a glance and part 1 of the CVO methodology (steps 1 and 2).

Step 3: Carry out qualitative research for each RFM group

Once your RFM groups are ready, you understand how your customers are distributed. But it is still not clear why some of them bring so much value, while others never bought again after their first order. This is where qualitative research comes in. It reveals the reasons behind buying, and the barriers related to your products and services.

For each RFM group, prepare a set of questions: NPS, barriers, demographics, reasons to buy, reasons for not returning, and custom questions based on your business case and goals. Send the surveys by email to the large groups; for smaller RFM groups, choose phone interviews. Send the NPS question separately from the other questions, so you can monitor it over time. Omniconvert Explore can also run on-site surveys for customers who visit the store.

The mistake to avoid here is skipping the research and going straight to a discount. A team sees a large inactive group, sends the same win-back coupon to everyone in About to Dump You, Ex-Lovers and Break-Up, and reports a good reactivation rate. But Break-Up customers were promotion hunters who hurt the margin, so the coupon buys back the least profitable customers. Meanwhile, Ex-Lovers who left over a delivery or service problem get a discount instead of a fix, and leave again after one order. A short survey per group shows which customers need an offer and which need a solved problem.

Step 4: Find customer anomalies

After you collect insights in the previous step, look at the other parts of the story to find gaps and anomalies. An anomaly is a hint about what makes a certain group different from the others. It can reveal toxic brands or categories that customers buy once and never again, cities with unusually loyal customers, or a channel that brings mostly Break-Up customers.

Read the order data and the survey answers side by side. If Soulmates mention fast delivery and buy mostly from two categories, while Ex-Lovers complain about one brand's quality, you have found both a strength to promote and a problem to fix.

Step 5: Find your ICP by doing RFM segmentation and analysis

After you introduce the RFM model and find your best customers, identify your ideal customer profile (ICP). Mix the quantitative and qualitative data you collected with the buying patterns the RFM analysis reveals. The ICP should include:

• Who the customers are: location, gender, age.
• When the customers buy: their buying habits.
• What the customers buy: product assortment anomalies.
• What keeps them coming back: their reasons and barriers.
• What the customers need next: answers from further qualitative research.

The ICP becomes the reference for steps 7 to 9: it decides who you acquire, what you offer and how you talk to each group. In Omniconvert Commander, the RFM segments behind the ICP push directly to Meta Ads, Google Ads and Klaviyo, so you can build lookalike audiences of your best customers without exporting spreadsheets.

Step 6: Optimize Customer Journey Mapping

With all these insights, look at your business and marketing goals and analyze your customer journey. Map the touchpoints as they are right now: every interaction a customer has with your business, from the first ad to the support ticket after delivery. Then find out what works and what does not.

Use the ICP as the lens. A touchpoint that works for an Apprentice can fail a Soulmate, and the reverse. The customer journey touchpoint mapping guide shows how to list and score each touchpoint. This map, the journey as it is, is the starting point for the journey you will design in step 7.

Steps 7 to 9 act on what you learned in part 2 of the CVO methodology (steps 3 to 6).

Step 7: Developing the retention strategy

Once you map all the touchpoints and characteristics, create the customer journey "to be": the way you want it to happen. When you apply the ideal customer findings across the entire journey, you create a loop that drives conversions and supports repeat orders almost on autopilot. The best tactics include:

• Better nurturing campaigns (email, ads, SMS, website personalization)
• Acquiring more customers like the ICP (custom and lookalike audiences)
• A better product assortment
• Better customer service for the best customers

Plan the retention strategy phase by phase. The table shows which campaigns and channels fit each phase of the journey.

In the first phase, the potential customer discovers a need, or sees an ad that makes them realize they have one. In the research phase, they compare options, so choice-reduction and positioning campaigns help them decide. In the select product phase, be ready with back-in-stock and browse recovery campaigns. The purchase phase is where marketing, fulfillment and customer service must join forces. The receive phase is all about customer satisfaction: make sure everything is in place and the customer's needs are met.

Customer retention shows most clearly in the seventh phase, the maintenance of your customers. Here marketing and customer service must work hand in hand. The last phase is the summit of the journey: referral campaigns show how interested your customers are and how willing they are to spread the word about your products and brand. For more tactics in each phase, see the 12 customer value optimization strategies.

Step 8: Ongoing optimization

At the end of a customer value optimization cycle and a thorough analysis, constant improvement is the only thing that should be on a company's mind. CVO is an evergreen process on the road to your goals and milestones. These are the next areas to work on for long-term growth:

• Loyalty programs
• Referral programs
• Customer acquisition
• Continuous cohort A/B testing
• Website experimentation
• Email orchestration

Website experimentation is where CRO sits inside CVO. Test changes for the segments that matter, and judge each result by what it does to customer value, not only to the conversion rate of one visit. AliveCor used Omniconvert to run a structured A/B testing program and achieved a 21 percent lift in conversion rate, a 5 percent lift in revenue per visitor, and 94 percent statistical relevance across their experiments [Omniconvert, AliveCor case study]. A higher conversion rate turns the same traffic and the same spend into more customers, which lowers acquisition cost, and a higher revenue per visitor raises the value each new customer starts with.

Step 9: Build ongoing personalization campaigns across all channels

Ongoing personalization keeps the customer engaged on the website and also in other channels where you reach them: social media, email, SMS, search engines and other websites where they see your ads. Website personalization is only one part of it.

The more valuable the customer, the more effort you put into making the experience unique. Use your RFM groups to segment your customers again each time you plan a personalization campaign. For example, a valuable Lovers customer:

• gets access to a new range of products before everyone else
• receives limited-edition products that match their taste
• is invited to special events

In general, ongoing personalization should include special treatment through email, ads, the website and SMS, special product delivery, personalized offers with custom audiences, welcome screens and special customer support. It gives each customer a unique and personal experience on your eCommerce website, which makes them more likely to convert. The aim is both to make the experience unique and to attract customers with offers built through the loyalty program.

Who owns customer value optimization in an eCommerce team?

Because customer value is a company-wide measure, CVO fails when it belongs to one channel team. Someone has to read the RFM data, commission the research, and make sure the retention strategy reaches customer service and the product assortment, not only the email calendar. Read what a CVO expert does and the CVO specialist job description to define the role in your team.

If you want to build the skills yourself, the customer value optimization certification from CVO Academy covers the methodology in depth.

For the next question, why you need customer value optimization, read the Omniconvert blog. Follow Omniconvert on LinkedIn for more on customer value optimization.

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