How To Improve Customer Lifetime Value in e-Commerce

Jawad Khan
B2B SaaS Content Marketing Strategist

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Did you know that the probability of selling to an existing customer is 60%-70%? For new prospects, that number drops to 5-20%. This is why eCommerce companies can achieve a much higher ROI by focusing more on increasing customer lifetime value (CLV) than acquiring new customers.

But what exactly is customer lifetime value, why is it essential for eCommerce businesses, and how can you increase it? We’ll answer all those questions in this detailed article.

What Is Customer Lifetime Value (CLV)?

Customer lifetime value (CLV) refers to the total amount of money your business earns from a customer throughout their relationship with your business.

For example: suppose you run an eCommerce store where the average customer spends $1000 per year for two years. This means your store’s average CLV is $2000. 

CLV = (Average Order Value) x (Sales Frequency) x (Average Retention Time)

Why Measuring CLV Is Crucial For eCommerce Businesses

CLV is among the most critical performance metrics for eCommerce businesses for many reasons:

It Increases Your Marketing ROI

Increasing your customer lifetime value means selling more frequently to a customer and persuading them to spend more every time they purchase your products. This helps you maximize your marketing ROI since you don’t need to spend additional money on customer acquisition to drive sales.

It Allows You To Plan Ahead

When you know how much you can expect to earn from a customer over their lifetime, you can create better sales forecasts and plan ahead of time. It also allows you to invest more in product development and business growth, knowing that you’re likely to drive a specific amount of money from your customers.

It Keeps You Alert

CLV is an excellent indicator of your customer satisfaction and your overall business health. A consistent increase in CLV shows your customers like your products and want more of the same. On the other hand, a drop in CLV raises red flags and means you need to analyze where you’re letting your customers down.

3 Proven Ways To Increase eCommerce Customer Lifetime Value (CLV)

Now that you understand how CLV works let’s discuss a few ways to increase eCommerce customer lifetime value.

1. Offer A Memorable Customer Experience

One of the fastest ways to increase your customer lifetime value is by constantly improving the customer experience your business offers.

According to a study by PWC, 43% of consumers are willing to pay more for a product or service if it offers a better experience. 75% of customers in the US and 65% in the UK say customer experience plays a decisive role when choosing between purchase options.

What is customer experience in eCommerce?

It is the overall impression a customer creates after doing business with a company. It includes everything from product quality, customer service, ease of payment, website UX, etc. According to the same study by PWC that we previously mentioned, here are the customer experience factors people value the most.

As an eCommerce business owner, you can improve your site’s product navigation, payment process, customer service, return handling process, and overall customer interactions to provide a memorable customer experience that directly improves your customer lifetime value.

You can also increase the average order value of your customers by offering personalized product recommendations and pitching related products at the checkout stage. 

2. Create A Customer Loyalty Program

Using customer loyalty programs is a popular way to retain customers longer and encourage them to shop more frequently from your eCommerce business.

What is a loyalty program? There’s no fixed model since these programs come in all shapes and forms. However, the main idea is to reward customers in different ways every time they purchase your products. This not only encourages them to buy more often but also helps in increase their average order size.

Here are some of the popular types of eCommerce loyalty programs

  • Point program: Customers get reward points on every purchase that they can use to claim different benefits.
  • Tiered program: Customers graduate from one loyalty tier to another as they spend more. 
  • Paid program: Customers pay a monthly fee to access discounts and deals.
  • Partner program: Customers get benefits from partner companies for purchasing your products.

Amazon Prime is an excellent example of an effective eCommerce loyalty program. An average Prime member spends around $1.4K per year on Amazon compared to non-Prime members who spend $400-$500 per year.

3. Engage Customer With Email Marketing

Email marketing is among the most profitable eCommerce marketing and customer engagement channels and offers an insane ROI of $44 for every dollar.

The best part? Customers love to receive discounts and special offers via email. But don’t limit your communication to promotional emails only.

To build a lasting relationship with your customers and increase their lifetime value, share tips and helpful content on using your products in various innovative ways. Stay on their radar and engage them regularly through birthday wishes, event-specific emails, and messages on special occasions (apart from the regular product updates.) The more they hear from you, the more likely they are to buy from you when they need your product.

How Will You Improve Your Customer Lifetime Value?

We’ve shared three popular ways you can persuade customers to spend more often on your products. But there are numerous other ways to increase customer lifetime value. The important thing is to regularly engage with your customers, make them feel special when doing business with your company, and offer them products that they really need.

If you have any questions about increasing customer lifetime value in eCommerce or need help devising a customer engagement strategy, please contact us.

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About The Author

Jawad Khan