There are many KPIs (key performance indicators) to help measure the performance of a Shopify store. These include sales, revenue, conversion rate, average order value—the list goes on. All those metrics are important, but they don’t always paint a clear picture of your store’s future revenue. For that, you need to know your customers’ lifetime value (LTV).
Lifetime value is the amount your average customers spend over the course of their relationship with your brand. If you’re looking to grow your Shopify business, LTV is a key metric to focus on. Now, let’s look at some ways you can improve your LTV.
Key takeaways
Many ecommerce businesses make conversion rates their focus because they want to make sure they are driving as many individual sales as possible. The catch is that converting new customers can be expensive. The costs associated with customer acquisition keep margins thin and growth incremental.
By contrast, optimizing for LTV can help with more sustainable growth. Here are some of the ways a higher LTV can
Higher LTV indicates a greater number of orders from existing customers. Why settle for only one order from customers you’ve already paid to acquire? Repeat orders mean steadier cash flow and fuller profit margins, which means higher ROI. This is a cycle you want to perpetuate.
Knowing how many repeat orders—on average—you can count on from your target customer means you know how much you can afford to spend to acquire those customers. When you can spend more, you can potentially outbid more competitors, which can help you win more loyal customers, repeat buyers, and ambassadors for your brand.
Those repeat orders and higher margins create opportunities to reinvest in your business. Expand into new markets. Hire crucial talent. Create new products informed by all the customer data you get from those repeat orders. A higher LTV helps give you the stability to make real progress.
If customers are reliably coming back to your store to make more purchases, it means you’re doing something right. It suggests they’re satisfied with your service and/or products. It indicates real brand loyalty. It’s a powerful metric to show employees and potential investors, and it can guide you as you refine your marketing campaigns and consumer targeting.
Now that we’ve seen why a higher LTV is worthwhile, let’s explore some practical ways to help get that number up.
Email may seem like a dated communication medium, but it’s still a powerful marketing tool. The average open rate for ecommerce email campaigns is over 15%. In other words, if an ecommerce marketing email is sent to 100 customers, an average of 15 of them will actually open that email.
Compared with other forms of digital advertising, this is a remarkably high average. This makes it a channel well worth activating to help boost your LTV.
To that end, consider capturing email addresses when customers complete purchases. Offer free and useful content in exchange for email addresses. As you grow this email list of engaged customers, you can begin sending periodic marketing emails.
These emails can contain updates on new products, special offers and promotions, and informational content your customers will find useful or interesting. You can even include discount codes exclusive to your email campaigns.
It’s important not to spam your customers—pay attention to your unsubscribe rate to make sure you’re not overwhelming them. But with the right cadence, you can keep a healthy level of visibility in their inboxes. Time your email campaigns to coincide with what you know of your customers’ behavior, and take advantage of holidays and seasonal activity to boost sales.
As a bonus, by watching the open and click through rates of various emails, you can learn what kind of subject lines, calls to action, and promotions work best for your audience, and optimize as you go.
So far we’ve covered methods that involve some level of sustained time and effort. It’s also worthwhile to develop and maintain a strong customer pipeline that can help generate repeat orders all on its own. This can be achieved through various tactics, including:
When it comes to effective ways to boost your LTV, it’s hard to compete with superior customer service. In a recent survey, 89% of customers said positive customer service experiences encourage them to make another purchase. Therefore, as you explore all the tactics mentioned above, don’t forget to invest serious time, energy, and resources into crafting great customer experiences at every stage. Consider the following measures:
One key way to help boost your LTV is to stay on your customers’ minds. The more they see you, the more likely they are to buy from you again. As they move around the internet, you want to show up as often as you can in the right settings. There are multiple ways to achieve this, including:
Your customers are bombarded with advertisements, entertainment, and information, all competing for their attention. By increasing their exposure to your brand across channels, you can keep from getting lost in the noise and help boost those LTV numbers.
The winning formula for boosting the LTV of Shopify customers won’t be the same for all online stores. Experiment with the above tactics and methods, and learn from the outcomes of each. Reinvest in what works for your customers, and optimize as you go. It’s not always a quick code to crack, but the potential rewards for your company are worth the effort.
The simplest formula is net sales / total customers. Learn more about the
A good way to measure the quality of your LTV is by calculating your LTV:CAC (customer acquisition cost) ratio. While LTV goals vary from business to business and vertical to vertical, a ratio of around 3:1 is considered very healthy.
