Customer lifetime value (CLV) is an important metric that can show how well your brand is doing when it comes to creating a great customer experience.
If your customers aren’t impressed with your shop the first time around, they’re not likely to return, and your CLV will be low—but if you consistently provide them with great products and service, you’ll be able to build loyalty over time and retain customers for years to come, leading to high customer lifetime value.
Consistently improving your CLV is a proven way to start building a sustainable business.
You only have a 5 to 20% chance of selling a product or service to a new customer, as compared to a 60 to 70% chance of selling it to an existing customer. That means by counting on more recurring revenue, you’ll be able to lower your acquisition costs and rely on loyal customers to help your brand meet its sales forecasts.
Read more: Turning customer churn into loyalty
You can calculate your CLV by multiplying the average purchase value by the average number of purchases that a customer makes over their lifespan with your brand. For instance, if your ecommerce business sells pet food, the average order is $30, and the average number of purchases is 10, then your CLV would be $300.
There are multiple ways to grow your CLV—by increasing your average order value, increasing your customer retention, or ideally, doing both.
Here are a few ideas for optimizing this important metric to help you build a sustainable ecommerce business.
1. Build personalized offers
Personalizing your communications is an important way to pique past customers’ interest and get them to make another purchase.
Beyond simply customizing emails and text messages with their name, you can use their behavioral and purchase history to create unique offers that are likely to interest them. For instance, if a customer previously purchased a book by a specific author, you can send them a message encouraging them to pre-order the author’s new book, offering a special discount.
Use the customer’s preferred communication channel(s) to make the offer, whether that’s email, SMS, or in-app messaging—you’ll be able to use your analytics data to segment each customer based on the types of messages they’re most likely to engage with, helping you optimize performance over time.
2. Create a digital customer loyalty program
To encourage shoppers to remain loyal to your brand, it’s important to give them good incentives to do so. They have a lot of options for where to shop, and so they should be rewarded for remaining faithful to your brand, with special discounts, perks, or other bonuses. With Loop, you can even use such segmentation to reward VIP customers, giving them a longer return window, for instance, or letting them keep a returned item rather than sending it back.
By building a digital loyalty program, you can give them new rewards every time they reach certain milestones, letting them accumulate points by making purchases or taking other actions, such as promoting your brand on social media. With this program, you can promote items that you want to liquidate or sell more of by offering them as perks, while encouraging customers to shop with you more frequently. Seventy-two percent of customers say they shop more often with brands that offer loyalty programs.
3. Build win-back strategies
By tracking your customer interactions with your brand, you’ll be able to tell how engaged they are—and understand when it’s time to re-invest in the customer relationship.
Use your CRM data to segment customers based on metrics such as how recently they’ve purchased a product, or even opened one of your marketing promotions. If a customer seems to be lapsing, and hasn’t visited your site or clicked on a link in at least a month, you might target them for a special deep-discount offer to entice them to give your brand another try.
You can also use win-back strategies for customers who’ve visited a webpage or added an item to their shopping carts, but haven’t converted. In this case, sending an immediate “forget something?” follow-up message—possibly with a discount attached—might help you close the deal and keep that customer in your sales funnel.
4. Optimize for exchanges in the post-purchase phase
Finally, don’t forget about your post-purchase experience as an opportunity to build customer loyalty.
If a customer needs to return an item, this is an ideal opportunity to encourage them to choose a replacement, rather than request a refund.
Customers have all sorts of reasons for returning items, from a poor fit to simply deciding they don’t need it anymore—and it doesn’t always have to mean the end of their relationship with your brand. But, if they simply process a refund and get their money back, it most likely will. The transaction is over, and they’re not inclined to give you another chance from there.
To transform this into an opportunity to build loyalty, use a returns management solution to optimize for exchanges. By using a self-service returns portal, you can enable customers to initiate their own returns, and collect data on why the return is taking place (size, style, color, defect, etc.). Then, you can offer them a replacement that meets their needs—if the shoes they bought fit small, offer them the chance to exchange them for a half-size up. If they just didn’t like the product generally, you can offer them the opportunity to use the credit to apply towards any item in your store—even incentivizing an exchange by offering bonus credit that they can apply towards the transaction.
Optimizing for exchanges can help you convert more customers that would have otherwise churned: About 40% of Loop brands’ customers exchange products rather than seeking refunds, with many choosing higher-priced items that result in upsell opportunities.
By creating a streamlined system that helps you optimize for exchanges on the back-end, you can retain more revenue and continue customer relationships that may have otherwise ended with a return—resulting in both higher customer satisfaction, and a higher customer lifetime value.
Ready to boost your CLV? Contact Loop to learn how to optimize for exchanges to retain more customers.