Understanding ECommerce Data #1: Customer Lifetime Value

If you’re involved in your company’s online marketing, you probably often hear about using “data” properly to help guide your online decision making. But what does this mean?

Are you collecting the right visitor and website data? Are you using that data to make better-informed decisions in your marketing plans?

With all the tracking tools and options at our fingertips, it’s hard to know where to begin. There are some crucial ecommerce metrics that every marketer must understand in order to create the right customer experience across all channels. So what should you track? There are ten metrics we’ll help you understand over the next month or so, and today we’re going to start with Customer Lifetime Value.

What’s Customer Lifetime Value?

It is MUCH cheaper to keeping your existing customers happy so they come back and buy more of your products than always trying to attract new customers. It costs five times more to attract a new customer than it does to keep an existing one.

That’s why we need to learn if our visitors are making additional purchased beyond the initial one, and learn the weight of these purchases to our bottom line. A great way to do this is to track customer lifetime value (CLTV).

There are two types of CLTV we can measure.

Historical CLTV – A customer’s current value based on their past purchases. This type of data should be easy to figure out just by analyzing past purchase orders.

Predictive CLTV – A forecast of a customer’s future CLTV based on past behavior.

How To Measure CLTV

The basic formula to determine a customer’s lifetime value is:

Average Order Value x Average Number Of Purchases Over Lifetime

You can use this formula to measure a customer’s lifetime value. You can also adjust the equation and measure a customer’s value over only the past couple of years, if you’d like.

Increasing Customer Lifetime Value

Naturally, the way to increase customer lifetime value is to have them buy more stuff from you. One great way to do this is through upsells. I’m sure your jewelry store trains to upsell customers correctly – it should be no different online.

There are a few ways to do this. First, you can attempt to upsell your visitor on checkout. You may find a cheap item they can add to their basket (for example, if I was ordering an alarm clock from Amazon.com, they may try to upsell me batteries or something similar on checkout).

Another way to upsell existing customers online is to send them great content about 10-15 days after their initial purchase. This content can be reviews or features of higher-priced items that the customer may be interested in at a later time.