Get the latest from
Eshopbox

Enter email to subscribe to our newsletter
Thank you for subscribing to Eshopbox newsletter
Oops! Something went wrong while submitting the form.
Ecommerce metrics

Ecommerce metric refresher—Customer Lifetime Value (CLTV)

Versha Kamwal
November 23, 2020
6
mins read

What’s a Rich Text element?

The rich text element allows you to create and format headings, paragraphs, blockquotes, images, and video all in one place instead of having to add and format them individually. Just double-click and easily create content.

Static and dynamic content editing

A rich text element can be used with static or dynamic content. For static content, just drop it into any page and begin editing. For dynamic content, add a rich text field to any collection and then connect a rich text element to that field in the settings panel. Voila!

  • asdasd

How to customize formatting for each rich text

Headings, paragraphs, blockquotes, figures, images, and figure captions can all be styled after a class is added to the rich text element using the "When inside of" nested selector system.

Customer Lifetime Value (CLV or often CLTV) is an ecommerce metric that predicts the net profit a customer is expected to generate for your business throughout their lifetime.

It can be calculated by the illustrated formula:

CLTV formula
CLTV formula

For example,

  1. The Average Order Value (AOV) of a customer = INR 1,000
  2. The Purchase Frequency of the customer is three times per year for two years
  3. The Lifetime Value of this customer = 1000 X 3 X 2 = INR 6,000
  4. After calculating the cost of goods sold (COGS), overhead, marketing, and all other administrative expenses, the retailer’s Profit Margin is 20%
  5. The Customer Lifetime Value = INR 6,000 X 20% = INR 1,200

Note: If this customer stays with you longer, the CLTV also increases, which means more revenue for your business.

Why should businesses calculate CLTV?

By taking CLTV into account, businesses can understand the value of each customer and plan revenue-oriented decisions.

There are many reasons for businesses to calculate CLTV, such as:

  • Understand marketing and sales expenditure
  • Analyse product development costs
  • Enhance customer service

Benefits of increasing CLTV

  1. Saves time and money

Acquiring new customers is five times more expensive than retaining existing customers. However, new and existing customers are equally important for a business, but resources are finite. By allocating resources on loyal customers, you can save a tremendous amount of time as well as money. Moreover, loyal customers get their friends to buy from your brand through referrals.

  1. Increases Return On Investment (ROI)

You can significantly reduce marketing expenditure by focusing on high-value customer groups instead of undervalued customer groups. These high-value customer group will boost your revenue with repeated purchases as they already are your loyal customers and increase the overall ROI.

How to improve your CLTV?

There are various strategies to improve your CLTV, but it is essentially done in one of the two ways:

  1. Encouraging your customers to buy more products
  2. Keeping your customers happy with great products and exceptional service

Strategies to improve CLTV

1. Increase your average order value

You can use merchandising techniques like product kitting —pre-built kits and custom combos, where customers purchase a set of multiple products instead of one product. Additionally, you can also provide minimum order incentives like free shipping, coupons, samples, or even direct discounts to your customers. Such techniques will increase the average order value (AOV) and ultimately improve your CLTV.

Dollar shave club product kitting
Dollar Shave Club has curated "The Trio - Paste" kit to provide a complete oral health solution for men

2. Upsell your products

Collect customer data and provide relevant product recommendations to your customers. This sales technique invites the customer to purchase more expensive products, upgrades, or other add-ons to generate more revenue. It exposes other products to customers which they haven't considered.

Myntra's product suggestions
Myntra suggests products based on customer's order history

3. Build customer loyalty programs

Customer retention is the key to improve CLTV. The longer the customers stay with your brand, the more revenue you will generate. To retain your most loyal customers, you can create customer loyalty programmes.

Tarte cosmetics customer loyalty program
Tarte Cosmetics offers redeemable points for every purchase and an annual birthday gift

4. Improve your customer service

Happy and satisfied customers spend more money on your merchandise and also recommend brands they love to their friends and family. For example, you can increase customer satisfaction by resolving customer queries quickly and professionally, ensuring fast shipping, enabling order tracking, offering easy returns and more. You can also foster relationships with customers by taking their valuable feedback and suggestions.

Kate spade survey
Kate Spade uses customer feedback surveys to nurture relationships with its customers

Bottom line

Customer Lifetime value is the go-to metric for ecommerce businesses to achieve long-term success. By calculating CLTV and applying it, you can retain customers who will become advocates for your business, as well as repeat buyers. As you focus on the needs of the right customers and build the right products, you can streamline your business processes, reduce marketing expenditure and increase your overall ROI.

Related Articles

Ecommerce metrics

Ecommerce metric refresher — Average Order Value (AOV)

Learn what is meant by average order value and why it is an important ecommerce metric which is key to long term business health and success.
Vallabh Daga, Eshopbox
October 19, 2020
Ecommerce metrics

Ecommerce metric refresher — Order Picking Accuracy

Learn what is meant by order picking accuracy and why it is an important ecommerce metric which is key to customer satisfaction and retention.
Vallabh Daga, Eshopbox
October 31, 2020
Ecommerce metrics

Ecommerce metric refresher — Sales velocity

Learn what is meant by sales velocity and how it is an important ecommerce metric which helps you accurately predict revenue generation.
Vallabh Daga, Eshopbox
November 6, 2020

Get the latest from Eshopbox

Enter email to subscribe to our newsletter
Thank you for subscribing to Eshopbox newsletter
Oops! Something went wrong while submitting the form.