Prioritizing existing customers is a smart move, especially during a potential economic downturn. When you give them an excellent experience, they buy more from you and recommend their friends do the same.
That’s why Antavo found that 67.7% of companies plan to increase their investment in customer retention throughout 2023.
Ahead, you’ll learn proven tactics to increase customer lifetime value and make more sales from your existing customers.
What is customer lifetime value (CLV)?
CLV is an estimate of how much revenue you’ll make over your entire relationship with a customer. It’s one of the most important metrics of a retail and ecommerce business.
Imagine you own a fashion brand. A customer makes their first purchase of $200 from your online store. If they only make this single purchase, their customer value is relatively low.
However, say this same customer likes your product and buys an additional $200 worth of merchandise every three months for the next five years. This means the customer’s lifetime value is $200 x 4 (times per year) x 5 (years) = $4,000—far more valuable than a one-off purchase.
Why is CLV important to your business growth?
CLV measures how much economic value a customer brings over their entire relationship with your business. You can use it to guide marketing strategies, budget allocations, and customer service policies.
Some benefits include:
-
Predictability: CLV gives businesses a long-term view of customer relationships, which can be useful in predicting future revenue. That’s why in response to the recent economic circumstances, 67% of brands shifted their focus from acquisition to retention, Twilio
reports. - Customer retention and profitability: Repeat customers buy more from a company over time. Long-term customers also refer others to your business, which adds even more value to the relationship.
- Smarter resource allocation: Knowing CLV helps you identify more profitable customer segments, so you can create more targeted marketing campaigns and attract higher-value customers.
- Better customer experience: When a company focuses on CLV, it tends to provide better customer service—and when customers feel like you understand them, 82.5% are inclined to buy from you again.
In an uncertain financial climate , customer retention should be your number one priority. Let’s look at where you should invest to increase customer satisfaction and CLV.
How to increase customer lifetime value
- Calculate customer acquisition costs
- Calculate customer lifetime value
- Listen to customer feedback
- Provide exceptional customer support
- Personalize marketing efforts based on customer data
- Implement loyalty programs to incentivize repeat purchases
- Upsell and cross-sell relevant products or services
- Build strong customer relationships
- Segment your customer lifetime values
- Focus on customer retention and reducing churn
- Create tailored product recommendations
- Customize marketing messages
- Optimized pricing strategies
- Tap into predictive analytics
- Set up subscriptions and replenishment reminders
- Create exclusivity and community
1. Calculate customer acquisition cost
Customer acquisition cost (CAC) is a key business metric that represents the cost of acquiring a new customer. It includes all marketing and sales costs spent to attract and convert a lead into a customer.
You can calculate CAC by dividing the total costs associated with acquisition by the total number of new customers within a specific time period.
Here’s the formula:
CAC = (MC + SC + W + OS) / CA
Where:
- MC is marketing costs
- SC is sales costs
- W is wages for marketing and sales teams
- OS is the overhead costs for marketing and sales
- CA is the number of new customers acquired
Monitor this metric regularly to measure the effectiveness of your marketing efforts and understand your return on investment. Lowering your CAC can increase CLV simultaneously.
2. Calculate customer lifetime value
Customer lifetime value can be calculated using the following formula:
CLV = (Average Purchase Value x Purchase Frequency) x Average Customer Lifespan
To break it down:
- Average Purchase Value = Total Revenue / Number of Purchases
- Purchase Frequency = Number of Purchases / Number of Unique Customers
- Customer Value = Average Purchase Value x Purchase Frequency
- Average Customer Lifespan = Average number of years a customer continues purchasing from your business
3. Listen to customer feedback
Customer feedback gives you insight into what people think about your brand and its products. Listening to feedback helps you get to know your customers at their core, which most customers feel influences theirpurchasing decisions.
When you use a Shopify app like POWR or Grapevine Surveys to create a feedback system on your website, customers can easily share their experiences and recommendations, and you get access to a goldmine of information for improving your products and CLV.
4. Provide exceptional customer support
Customer support helps customers out when something goes wrong, but it’s an area of business normally associated with slow response times and inefficiency. Today, customer support needs to be amazing if you want to retain customers and encourage sales.
A unified commerce approach turns customer support from a reactive function into a tool for building customer relationships and driving loyalty. By consolidating first-party customer data across all touchpoints into a single customer model, you give your support team insights that enable truly personalized service interactions.
With access to rich customer data, support teams can:
- View complete purchase history across online and in-store transactions
- See customer segment information and preferences
- Access previous support interactions and their outcomes
- Understand the customer’s lifetime value and engagement level
- Review specific product interactions and abandoned carts
Research what channels your customers prefer for support. Do they prefer self-service, social media, or website live chat? Once you know which channels to focus on, you can invest in them and provide better support.
Shopify Inbox is a free Shopify app that helps retailers provide omnichannel support for customers. You can communicate and sell over online store chat, social media, and email, all from the app. You can even send products, discounts, and new orders from your Shopify store directly into the chats with just a few taps, to turn mere conversations into checkouts.
Shopify Inbox also connects with popular messaging platforms like Facebook Messenger, so customers can contact you directly from your Facebook page, Facebook shop, and Messenger.
5. Personalize marketing efforts based on customer data
Understanding individual preferences leads to personalized experiences that drive repeat sales. It requires knowing how a customer likes to shop, what products they’re interested in, and types of communications they prefer.
But what do these personalized experiences look like? A recent Yotpo survey found what personalization actually looks like to customers. The top five responses were:
- The brand recommends products based on my previous purchases (53.9%).
- The brand emails me when products I’m interested in are back in stock (45.2%).
- The brand uses my name in emails and texts (37.7%).
- The brand knows my sizes, dietary restrictions, skin type, etc. (36.7%).
- The brand knows which loyalty tier I’m in and treats me accordingly (32.8%).
Understand your customers across all touchpoints, and avoid generic approaches to your marketing and communication through the customer journey. Don’t just send out a generic happy birthday email once a year—tailor your message and offers to your customer’s known tastes, needs, and style. Try an app like Rebuy Personalization Engine or Zepto Product Personalizer to tap into customer information and deliver the personalization they want.
6. Implement loyalty programs to incentivize repeat purchases
Customer loyalty programs are good for everyone.
One report found that 80% of companies who implemented a loyalty program reported a positive ROI, with an average of 4.9 times more revenue than expenses. Plus, 89% of customers trust loyalty programs to help them overcome the inflation crisis and potential recession.
Use a loyalty program to show your most dedicated customers that you care by offering them gifts and rewards for repeat purchases. You can offer different perks to encourage upsells and cross-sells like:
- Points
- Gift cards
- Discounts
- Cash back
- Free swag
For example, body care retailer Blume used a point system called Blume Bucks (BBs) for their loyalty program, Blumetopia. Customers earn BBs by completing tasks like following the brand on Instagram, buying products, leaving a review, or having a birthday.
Earning Blume Bucks is easy. Get them whenever you shop. Plus, earn bonus BBs for fun things like being our friend on social, telling friends about Blume, and having a birthday (achievable, right?).”
It’s free to join, and customers can redeem BBs for free products, merch, and other gifts from Blume.
Starting your loyalty program is easy. With an app like Smile, you can set up a program that gives your customers access to exclusive perks and discounts, referral and VIP programs, and other fun ways to engage with your brand when they log in to your store.
Learn more by reading Keep Them Coming Back: 7 Innovative Customer Loyalty Programs (And How to Start Yours).
7. Upsell and cross-sell relevant products or services
Upselling is a tactic in which you persuade customers to buy a premium or upgraded version of a purchased item, or other items. The recommended items are often more expensive, as the goal is to make a larger sale. It’s used with customers who’ve already made a purchase.
With cross-selling, you make a recommendation of a product that complements the original product the customer purchased. Think of cross-selling as a server asking, “Would you like fries with that?” and upselling as, “Would you like Hendrick’s instead of well gin?”
Use an app like ReConvert to add upselling and cross-selling tactics to your store. It provides post-purchase funnels and one-click upsell pages you can design in minutes. You can also use it to display product recommendations, offer coupon codes, collect birthdays, and much more.
8. Build strong customer relationships
Customer expectations are increasing. In 2022, Intercom found that 83% of support teams have experienced this increase, and say that they are doing more with less.
Some easy ways to build strong customer relationships are:
- Sending personalized messages on special occasions, like a birthday
- Providing omnichannel customer support
- Acting on customer feedback
- Creating a community on social media or hosting events
Personalization is the key competitive differentiator when building relationships and winning customers. Support teams that focused on personalized support reported doubling their customer retention, according to the Intercom report.
Take luxury floral brand Venus et Fleur: By implementing a unified commerce approach that connected their online and in-store experiences, they achieved a 10%-15% year-over-year increase in average order value over three years, and saw 15% higher order values from Shop app customers compared to shoppers on their website.
This approach to customer relationships led to improved loyalty metrics and a 12% reduction in abandoned carts, through personalized features like custom delivery calendars. The secret was making sure every customer touchpoint was connected and personalized to maintain a consistent experience across all channels.
