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Customer Lifetime Value for E-commerce: 16 Tips to Increase CLV

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Understanding your customers’ importance is the number one step in developing a strong e-commerce site. That understanding begins by visualizing your customer lifetime value. 

In this article, we are going to discuss what customer lifetime value is and why it matters to your online shop. Also, we are going to talk about 16 ways you can increase customer lifetime value in your e-commerce store.

What is Customer Lifetime Value?

Customer Lifetime Value (CLV) refers to the amount you can expect to earn from an individual customer across the time the customer does business with your company.

Ideally, you want your customers to be lifetime consumers. This situation means that you have customers coming back time and again. When considering your CLV, you consider how much revenue your e-commerce site can earn from a single customer. Then, you can project that value over the total number of customers.

Consider this example:

A cosmetics company sells skincare products via a monthly subscription. Every month, subscribers get a package in the mail with a month’s supply of products. The monthly subscription costs $10 and lasts 12 months. In this example, we can expect the CLV to be $120 per customer.

The most significant issue in this example is that the company has assured its income for 12 months. Of course, the company must ensure that customers renew their subscriptions, or it must find new subscribers.

Your CLV depends on your ability to keep customers coming back regularly. If your business has trouble keeping customers, your CLV will be lower. Ideally, keeping customers aboard long-term is the best way to ensure your CLV remains steady.

How to Calculate CLV Using the Customer Lifetime Value Formula

You can calculate your CLV by using the customer lifetime value formula. Don’t worry. The customer lifetime value formula is quite easy to use.

Here it is:

Value * time period

That’s it!

By “value,” we mean the income you get from each customer. By “period,” we mean the length of time you expect to keep a customer. 

There’s another key element to consider in your CLV calculation: churn rate.

Your e-commerce site’s churn rate boils down to the number of customers you lose. For instance, 25 of 100 customers don’t renew their subscription with you. This figure means your churn rate is 25% (25 / 100 = 0.25).

Keeping your churn rate low is critical to increasing customer lifetime value in e-commerce.

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Why is Customer Lifetime Value Important in E-commerce?

Three key reasons underscore customer lifetime value importance.

#1: Predictable revenue

You can predict your revenue when you know how many customers you have each month and how much you earn from each one. As a result, CLV helps you manage your finance much more effectively. 

Predictable revenue also enables you to project your inventory needs. After all, if you know how many sales you’re going to make every month, you can plan your inventory needs effectively. 

#2: Project profitability

If you know how many sales you’re going to make each month, you can project your profitability by keeping your costs in check. Keeping costs in check is the most important thing you can do to ensure that your online shop generates a steady profit every month and year.

#3: Improved cash flow management

Cash flow management is crucial to all businesses. Imagine you know how much money you’re going to get every month. Wouldn’t that make planning your cash flow much easier?

Indeed, understanding your CLV allows you to plan payments such as payroll, overhead, and stock. You can confidently cover your business expenses while ensuring you have enough funds left over for any unforeseen issues.

16 Ways to Increase Customer Lifetime Value for E-commerce

Here we go!

#1: Streamline customer onboarding

Streamlining customer onboarding is a key element to increase customer lifetime value. In particular, making your customer’s experience with your products and services the best it can to help increase CLV. 

maximizing customer lifetime value

Focusing on a highly effective customer experience ought to be a top priority. Data shows that poor customer onboarding accounts for 23% of customer churn. In other words, a poor customer experience can cause your churn rate to spike well over 50%. 

#2: Offer valuable content

Building an enjoyable customer experience doesn’t stop with great products and services. The best companies offer free, valuable content to engage customers consistently. Content such as blogs, videos, ebooks, and webinars are all examples of how your e-commerce site can maintain constant customer communication. 

customer lifetime value importance

For instance, a food and beverage subscription service can actively engage customers by posting content offering insights on recipes, product combinations, and other related topics.

#3: Provide outstanding customer support

We often hear this point all the time. Great customer service keeps customers happy. However, very few online shops take this point seriously. Research suggests that as much as one-third of customers switch products and brands due to poor customer service. So, if you’re looking to keep your churn rate low, take a look at your customer service practices. 

what is a good customer lifetime value
Yeah, not so much of this...

Above all, ensure you’re always there for your customers. Don’t be afraid to admit mistakes but do everything you can to correct them. A great way to ensure you’re always there is to offer multi-channel support. Customer support via live chat, email, and social media can help keep your churn rate low.

#4: Foster relationships

Your brand builds relationships with customers. Your products and services become a part of your customers’ lives. As a result, fostering relationships helps increase customer lifetime value on Shopify and must be high on your radar.

customer lifetime value analysis

Our customer lifetime value analysis is clear. Building relationships with customers means they stay with you for the long haul. It’s nice to get new customers. But it’s much better to keep them. Please don’t forget the 80/20 rule. 80% of your revenue comes from 20% of your customers. So, you must strive to ensure that 20% are as happy as they can be.

#5: Listen to your customers

Yes, please listen to them. But really listen! It’s one thing to hear what they say. Listening to what they have to say is another completely different thing. You can ensure an increased customer lifetime value by paying attention to what your customers have to say.

why is CLV important in e-commerce

A key metric to consider is your net promoter score (NPS). An NPS score reflects how much your customers become active promoters for your brand. Your NPS can be an early warning signal of a high churn rate.

A good NPS score should reflect a low churn rate. However, a low NPS score will result in a high churn rate sooner rather than later. Monitoring your NPS scores can help you prevent an increase in your churn rate. Engaging with passive customers before they leave your brand is a great way to keep your CLV steady.

#6: Deliver solutions

Your customers seek your brand to solve a pain point. As a result, your products and services should strive to deliver solutions. You’ll always be atop your game if you can solve customer pain points. The challenge is to identify your customer pain points so your products and services can deliver solutions. 

increase customer lifetime value in your store

Please remember that finding new ways to solve ongoing pain points can help you maintain a steady CLV and a low churn rate. For example, a clothing company continuously innovates its products to provide more cost-effective options while maintaining the same quality level. This approach ensures a high CLV and a low churn rate.

#7: Focus on personalization

Any great customer lifetime value analysis considers personalization as a key factor. According to data, 81% of customers indicate that businesses should understand their needs and provide personalized solutions.

what is customer lifetime value

What does this mean?

It means that brands must strive to provide solutions that cater to consumers’ individual needs. Of course, providing tailored solutions for every customer is virtually impossible. Nevertheless, offering an array of options can help customers feel they’re getting personalized service. For example, offering mix-and-match bundles can help customers feel they’re getting a tailored solution for their needs.

#8: Show your product roadmap

What do we mean by “product roadmap?”

A product roadmap describes where a product or service takes customers. In other words, you trace a path that allows customers to visualize where your product can take them. A product roadmap is a valuable part of establishing your brand’s unique value proposition.

strategies to increase CLV

Consider this example:

Your online business offers an assortment of online training courses. These courses have a logical flow to them. However, that flow may not be evident to consumers. Therefore, you must outline how each course addresses a pain point and why taking every course helps consumers achieve the main outcome. 

This approach keeps customers coming back because they can see the journey ahead. Instead of taking one course, consumers are encouraged to take multiple courses to achieve their ultimate outcome.

#9: Change your billing cycle

Companies often offer monthly billing options to provide customers with flexibility.

How so?

Monthly billing allows customers a chance to opt-out if they don’t like your products or services. After all, the last thing you want is for your customers to feel trapped. However, monthly billing opens the doors to a high churn rate. 

increase customer lifetime value shopify

Switching to an annual billing cycle helps keep your churn rate down while offering you a predictable revenue source. However, the secret to making annual billing work is to offer a discount. For instance, customers pay $10 a month for a subscription. 

This fee totals $120 annually. If customers pay annually, they can get a $10 discount and pay $110. This approach ensures your customers stay on board while giving you an entire year to make sure your customers keep coming back.

#10: Upselling and cross-selling

A great way to increase customer lifetime value in e-commerce is to upsell and to cross-sell. 

You can generate more revenue from each customer if you show them more products, and encourage them to purchase more whenever they visit your store. 

e-commerce customer lifetime value
Source: dipalready.com

Upselling is highly important as data shows that roughly 70 to 90% of income comes via upselling and cross-selling rather than an initial sale. PickyStory has all the tools you need to create an amazing (and effective) upselling and cross-selling strategy across your store.

#11: Use a dunning management system

A dunning management system is used to retry failed credit card payments. As such, a dunning management system is crucial for subscription-based services. Please note that there are various reasons why a credit card charge may fail. For instance, expired, lost, and stolen credit cards are the most common causes of failed charges.

how to increase customer lifetime value

An effective dunning management system allows your online store to continue trying to bill customers while sending notifications of failed attempts. This approach reduces churn by reminding customers to make their payments. Your e-commerce site can follow up by offering support in updating its payment information.

#12: Run loyalty and reward programs

Loyalty and reward programs are highly effective in reducing churn. These programs encourage your customers to stay on board by offering them incentives the longer they stay. Airlines and credit card companies have been a staple of this approach.

tips to increase customer lifetime value

This customer lifetime value analysis uses loyalty and reward programs to incentivize your customers to keep coming back. Don’t be afraid to offer exclusive promotions based on tier levels. In doing so, you incentivize customers to keep coming back.

For instance, basic subscribers get a 10% discount when they renew. Premium subscribers can unlock a 25% discount with an annual payment. You can increase customer lifetime value by rewarding your customers. So, don’t be afraid to throw in a little extra from time to time. Your customers will certainly appreciate it.

#13: Raise prices

Wait a minute, raise prices?

Yes, even a modest price increase allows you to boost your customer lifetime value significantly. One study showed that a 5% increase led to a 22% boost in profitability.

increase customer lifetime value e-commerce

Raising your prices can have a significant impact, particularly when your costs have risen. However, be sure to explain to your existing customers why you are raising prices. Doing so fosters transparency while ensuring your customers see the value they get at a higher rate.

#14: Go the extra mile

Going the extra mile often involves doing little things that add up. Management guru Brian Tracy once said, “Successful people are always looking for opportunities to help others. Unsuccessful people are always asking what’s in it for me.”

customer lifetime value calculation

Indeed, going the extra mile is about finding ways to solve your customers’ needs by doing the little things right. When you do the little things right for your customers, they stay with your brand. In contrast, customers are likelier to leave your brand if they feel you don’t care about them. 

#15: Give your customers what they want

One of the biggest benefits of listening to customers is understanding what they want. If you listen to your customers, they’ll tell you what they want from your brand. In doing so, you can adjust to your customers’ needs. Microsoft founder Bill Gates said, “Your most unhappy customers are your greatest source of learning.” 

increase customer lifetime value

Listening to unhappy customers, such as detractors (based on NPS scores), can help you recalibrate your approach so that you can address customer needs more effectively. Ultimately, listening and adjusting will lead you to a highly successful online business.

#16: Treat your customers like you would treat yourself

Walmart founder Sam Walton famously said, “There is only one boss. The customer. And he can fire everybody in the company, from the chairman down, simply by spending his money somewhere else.”

customer lifetime value formula

This quote underscores customer lifetime value importance. When you treat customers like you would treat yourself, you open the door to wonderful things. You allow customers to feel like they truly matter. By putting yourself in their shoes, you can see what truly matters. 

Ultimately, knowing how your customers feel is the most important part of customer lifetime value analysis.

Final thoughts

Increasing customer lifetime value is not an esoteric concept. Understanding how your products and services solve specific pain points boils down to understanding. When you do, you allow your brand to become a valuable part of your customers’ lives.

In this customer lifetime value analysis, we underscored a critical factor: customer service is the most important thing you can do to increase your customer lifetime value. 

So, the next time you’re thinking about increasing your revenue, think about the ways you can increase the ways you can solve your customers’ problems. Making other people’s lives easier will ensure you have customers for a lifetime.

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