Customer Value Optimization is an awesome new concept that you need to grow your business in a smart way!
In this second episode of the eCommerce Growth Tips series, you’ll learn what is Customer Value Optimization, why you should care about it and how to make it happen on your eCommerce store or business.
- (00:00) – Intro
- (00:39) – First steps in eCommerce – challenges & learnings
- (01:35) – Why Customer Value Optimization is important
- (01:44) – How to grow your eCommerce
- (02:04) – Most eCommerce companies make this mistake
- (02:39) – Why only focusing on acquiring new customers is wrong
- (03:03) – Case Study – learning from a Fashion eCommerce Store’s experience
- (03:41) – What should you do
- (04:10) – Monitoring and understanding Customer Lifetime Value
- (04:38) – Customer Value Optimization defined
- (05:04) – Let’s start doing Customer Value Optimization
- (05:19) – How we can help
Check out the transcript below!
Today we’re going to talk about customer lifetime value and why it matters so much for eCommerce companies. In fact, I have used this process to grow my own eCommerce company from zero to 200 thousand customers and then exit.
First steps in eCommerce
When I first started my eCommerce 13 years ago, I struggled. There were a lot of things to consider at the same time: low budget, many challenges and a tiny team, so I needed to be a one-man army to generate sustainable growth.
In the beginning, I was excited about the market potential. Then, I got frustrated seeing how big the market was and how little our numbers were.
The acquisition costs surged. We were making Google richer. At some point, we realized we just paid half a million on Google Ads and we barely reached breakeven after three years of hard work.
Today, 13 years since then, I realized that there is still a lot of noise in the eCommerce industry and many commerce managers misunderstand the power of customer value optimization and why it is so important.
The eCommerce market is fierce: high acquisition costs, discounts, low margins, really challenging to generate high profitability.
How to grow your eCommerce
Jay Abraham said that there are only three ways to grow a business:
- Increase the number of customers.
- Increase the average order value per customer.
- Increase the number of transactions per customer.
Most eCommerce companies are focusing only on the first part. They acquire more customers and neglect the other two. That is usually happening because of the common mindset. Growth means acquiring more customers and who could argue with that, right?
Even when you look in Analytics, you see new customers placing orders every day. This must be right! Well, usually it is not. If you continuously pour water in a leaky bucket, you’ll end up empty-handed. If you focus only on acquiring new customers without taking care about how they feel and if they stick around, you’ll eventually run out of potential new customers.
Picture this. If a company keeps on acquiring new customers but doesn’t manage to keep them buying, then eventually that company will run out of possible new customers, unless it starts selling on Mars.
I’ve seen this happening for a fashion eCommerce company a few years ago. They looked only at revenue, ROI and YOY growth, without monitoring the customer retention. They grew a lot, expanded to 11 countries and everything looked fine. Until they realized that the ad costs were too high. The eCommerce manager thought that the price will solve the problem. So he got on the downward discount spiral that ate up almost all of his margin. That affected the cash flow, their capacity to buy new products and eventually, the company vanished into oblivion.
So what do we do?
Your eCommerce must be better than that and that’s why you need customer value optimization. So here’s the challenge. Decades of acquisition marketing, free and well-made training from Google and Facebook distorted the common understanding about eCommerce growth that made most eCommerce companies focus only on the first two ways to grow an eCommerce: more customers and higher AOV.
Few are the companies that are monitoring and optimizing the total lifespan of a customer. According to available data, the bigger the companies, the more resources they invest in optimizing customer value and we can all see the outcomes.
Amazon, one of the first companies that introduced the subscription model, Amazon Prime, which optimizes customer lifespan, is now dominating the eCommerce landscape.
In a nutshell, customer value optimization is the ongoing set of activities and tactics to increase customer lifetime value. This is the secret sauce for continuous growth! Customers that continue to choose a company over and over again.
Habit-forming is the key ingredient that makes companies like Google, Amazon, Facebook, Starbucks or IKEA dominate their markets.
Are you convinced about the impact of customer value optimization? I warn you. You must do some heavy lifting. Also, changing the company mindset and aligning everyone towards new objectives can be challenging!
I can help you out. I will give you free access to our proven methodology to optimize customer value based on years of experience.
Stay tuned for our next eCommerce Growth Tips video next week where we learn more about the top 5 reasons why customer value is vital for your business!