I came across a question from a Shopify store the other day:
What’s the best way to start doing LTV and repeat purchase analysis?
How early would you start paying attention to it?
I’ve got 2000 customers so far and curious about seeing repeat purchases and in particular what impacts it.
While you should always be considering repeat purchases, the size of your customer base will determine how important it is right now and what actions to take.
2,000 customers is enough to start analyzing customer data using basic measurements. The more advanced techniques would need more customers but you can easily grow into them.
For customer segmenting, I’d recommend using five groups like the customer grades in Repeat Customer Insights. Five groups of equal size would be 400 customers each which is enough to see some behavioral improvements. You won’t be able to A/B test them but you could do a hold-out test (e.g. mail 90% of the group an offer and “hold” the mailing for the other 10% as a control).
I wouldn’t go with more segments until you have more customers. RFM with the 125 segments would have too few of customers in each segment. Even the 30 automatic segments that I use in my app would only leave about 66 customers per segment. Make sure each group is at least 200 customers, 400+ is better.
An alternative might be to segment customers into one-time customers VS repeat customers. I’d expect at least 400 customers to be repeat customers (based on a 20% repeat purchase rate which is considered a bit low).
That’s plenty for a simple retention campaign or even some simple VIP perks.
The customer’s lifetime value (LTV) might be useful in aggregate (Average LTV) but it’s probably premature at this stage. Average LTV can be used to figure out how much you could earn from a customer, but it’ll depend on how long your store has been operating. Some customers might not have finished their purchasing lifecycle so the LTV would appear lower than if you measured in 6 or 12 months from now.
Your Repeat Purchase Rate is probably the best single metric for measuring repeat purchases. It’ll consolidate a lot of other metrics and measurements into a single number that is easy to monitor. Many stores don’t know about it or even measure it, instead relying on more transactional-based metrics (LTV, AOV).
Finding the Repeat Purchase Rate, Average LTV, AOV, and other metrics for customers who first bought in each year could be valuable (basically annual cohorts). Then you can compare year-over-year differences and see how older customers are continuing to buy (or not buying).
Overall the big things to look at are: simple customer segments and Repeat Purchase Rate. Use those to work on the new customer experience and basic retention for repeat customers.