With the rise of growth hacking and the success of startups, many businesses focus heavily on customer acquisition rather than retention. However, it’s important to remember that customer loyalty is valuable and worth investing in. According to research conducted by Smile.io in 2019, customers in the top 10% spend 3x more per order than normal customers, and the top 1% spend 5x more.
While creating a great customer experience has always been important, it’s never been easier. However, many businesses still haven’t figured out how to best take advantage of this opportunity. That’s why it is crucial to understand customer lifetime value (CLV) and how to increase it on Shopify. Let’s discuss it in detail.
What Is Customer Lifetime Value?
Customer lifetime value, or CLV, is the estimated profit a customer generates over their entire relationship with your business. It helps to identify and predict the highest-value customers and form long-term relationships with them.
Understanding CLV is important for eCommerce businesses because it helps inform strategies such as customer retention, marketing spending, and products or services offered. Also, you can use it to calculate how much you should invest in acquiring and retaining existing customers.
How To Calculate The CLV of Your Business?
Before calculating customer lifetime value of your business, you need to determine three different numbers:
- Average Order Value (AOV): To calculate this, divide your business’s total revenue over a given period by the total number of orders placed at that same time frame.
- Average Purchase Frequency (APF): This can be determined by taking the total number of purchases made and dividing it by the number of unique customers who purchased during that period.
- Average Customer Lifespan (ACL): To calculate this number, take the average number of years and calculate the average years a customer continues to purchase from your business.
Once you have these numbers, you can calculate the CLV for your business by:
- AOV x APF x ACL = CLV
To get your CLV, multiply the average order value by the average purchase frequency and customer lifespan. This will help you determine how much revenue you can expect from a single customer over their entire relationship with your business.
How To Increase Customer Lifetime Value on Shopify?
Focusing on existing customer acquisition, increasing customer lifetime value, and finding ways to retain customers are key to success in any eCommerce business. Here are a few strategies to help you improve customer lifetime value for your Shopify store:
1. Create Loyalty Programs and Discounts
Create loyalty programs that reward customers for their purchases or offer discounts over time. This will incentivize them to return and make more purchases, increasing their lifetime value with your business.
You could offer a discount for customers who have purchased from your store more than once. This will help build customer loyalty and encourage them to return for future purchases.
Also, consider offering discounts to customers who refer new customers to your store. This will help to spread the word about your business and attract more potential customers.
2. Offer Ongoing Services
Ongoing services such as newsletters, subscription boxes, or personalized recommendations can greatly increase customer satisfaction. These services can also upsell customers on additional items or services, increasing their lifetime value with your business.
For example, you could send a monthly newsletter offering customers tips and advice on using your products. This will help make them feel like they are part of a larger community, giving them more reasons to keep returning and buying from you. Also, use personalized recommendations to suggest items customers may be interested in based on their previous purchases.
3. Use Retargeting Ads
Retargeting ads are an effective way to stay in touch with customers after they’ve made a purchase. By showing them relevant ads, you can increase the chance of them making a new purchase or revisiting your store.
You could use retargeting ads to remind customers about items in their shopping cart that they have not yet purchased, offer discounts or coupons on specific products, or promote related items that customers may be interested in.
4. Offer Free Shipping
No matter your budget, offering free shipping can help to increase customer loyalty. According to research, shoppers spend more when they don’t have to worry about delivery costs. Free shipping is especially important for online purchases as customers can’t touch and feel the product before buying it.
To ensure you are still profiting on each sale, consider the cost of shipping when setting your product prices. Also, consider offering free shipping over a certain order amount. This will incentivize customers to spend more, increasing their lifetime value with your store.
5. Provide Excellent Customer Service
The way you interact with customers can have a huge impact on their loyalty to your brand. Make sure you reply efficiently, provide helpful and timely advice, and understand when things don’t go as planned. Also, take the time to follow up with customers after their purchase and ask for feedback. Customers appreciate when businesses take the initiative to check in on them, which can help you understand how to improve your products or services.
You will increase the likelihood of customers returning for future purchases by providing exceptional customer service. Having a comprehensive return policy can also help to build trust with customers. You can increase your CLV significantly by being proactive and responsive to customer needs.
6. Offer A Referral Program
Increase CLV and get exposure to new customers – referral programs are a great way of doing that. Studies have shown that referred customers have higher lifetime values, with a 16% less churn rate than the average customer. People also trust recommendations from people they know: 81% of consumers do. Furthermore, 55% of people share their new purchases on social networks.
Therefore, implementing a referral program can help increase your customer lifetime value and open new channels of potential customers. Not only do they improve CLV, but they also generate more engagement with current loyal customers who share their purchased items on social media. A win-win situation!
7. Use Email Marketing
By setting up an email marketing campaign, you can keep in touch with your customers and remind them about offers and promotions. You can also use content-rich emails to share useful information or product news that may interest them. This will help build trust between you and the customer and give them a reason to return to your store.
When setting up an email marketing campaign, use segmentation tools to target specific customer groups with the most relevant messages. It will help you create highly personalized campaigns that are more likely to convert into sales and increase customer lifetime value.
Additionally, ensure all your emails have a strong call to action and use attractive, eye-catching visuals to make them stand out. Doing this will help ensure your emails effectively encourage customers to return for more purchases.
7. Be Active On Social Media
Utilize social channels like Twitter, Instagram, and Facebook to engage with customers by sharing helpful content, answering questions, and responding to comments. Make sure your brand is visible on social media and that customers can easily find you. This will build trust and loyalty with your customers and ensure that customer service inquiries are handled quickly and efficiently across all channels to satisfy them.
Use the data collected from social media interactions to gain insight into customer interests and preferences. This can help create personalized campaigns and targeted offers that fit their needs.
8. Detect Common Pain Points And Provide Solutions
Customer relationships are delicate and can be easily damaged if their pain points are not addressed. It is important to identify common customer complaints and obstacles that prevent them from returning to your store. Once identified, you can take the necessary steps to address these issues to create a better shopping experience for your customers.
For example, some of the most common customer complaints are related to shipping speed, product quality, customer service responsiveness, and payment method options. You can make the necessary changes to provide a more seamless customer experience by recognizing these issues.
9. Expansion Revenue – Upsell And Cross-Sell
For complementary products and services with lower price points, upselling and cross-selling are effective strategies to increase sales. Upselling encourages customers to purchase more expensive items while cross-selling is when a merchant offers additional products related to the customer’s purchase. For example, if someone purchases a dress, they could be offered jewelry or accessories that would go well.
A sidebar could be used to recommend related or complimentary items that could increase the total order value. You can also add banners to product pages that offer a discount on select products when the customer adds them to their cart. This encourages customers to buy more, boosting your sales and increasing lifetime value.
10. Implement A Dunning Management System
A failed payment can quickly turn a customer from loyal to lost. Dunning management systems can help you recover failed payments and minimize the damage done by them. It automates failed payment notifications and attempts at recovery, allowing you to quickly address any issues that may arise without having to reach out each time manually. This will reduce the churn in your customer base and help you maximize customer lifetime value.
11. Leverage Artificial Intelligence To Tailor Your Offers
AI can be invaluable in understanding your customers better and creating offers tailored to their needs. AI-driven segmentation can analyze customer data to identify trends, preferences, and buying behaviors so that you can create personalized offers that are more likely to be accepted. Offer discounts, free trials, and more targeted promotions to ensure your customers stay interested in your product.
12. Track And Analyze Results
Tracking and analyzing results is key to understanding the successful strategies for increasing customer lifetime value and which ones need improvement. Track metrics such as customer acquisition cost (CAC), average order value (AOV), retention rate, etc., to ensure that your efforts are paying off and make adjustments as needed. Doing so will allow you to identify areas for improvement and capitalize on them.
Utilize Blue Owl Agency To Optimize Your Customer Lifetime Value On Shopify
Being a Shopify partner, the professionals at Blue Owl can provide you with the services to optimize your customer lifetime value. We will help you analyze and determine key performance indicators (KPIs) and develop strategies to increase your customer lifetime value and overall return on investment (ROI).
With our team’s data analytics expertise, you can comprehensively understand the performance trends within your store. We will also help you understand how factors – such as marketing campaigns, product features, pricing structures, and user experience design – influence your customer lifetime value.
By leveraging our comprehensive services, you can maximize your campaigns’ impact and make more informed marketing and product management decisions. With this information, you can optimize your store’s performance and increase your customer lifetime value over time.
Get in touch with us today to learn more. We look forward to helping you get the most out of your Shopify store!