Let’s start with…
The Most Important Takeaways: How to Increase Customer Lifetime Value
- Customer acquisition costs are rising across the board, with Facebook rates returning to pre-pandemic highs.
- Consumers and regulators around the world are wary of big tech, pushing Google and Apple to contemplate making it harder to target ads across several platforms.
- Brands are experimenting with new channels like voice-powered shopping to address rising acquisition costs and advertising uncertainty. They’re also putting an emphasis on customer retention, rewarding and motivating current consumers to spend more.
The Expense of Acquiring New Clients Is Increasing
Online stores can increase customer lifetime value in the long run by exploiting cross-selling and upselling potential, establishing holistic customer experience management. A high CLV eventually increases loyalty, as well as the acquisition of new clients for your business due to a better understanding about what they want from you instead of just one purchase per user or visitor session on average like some other mediums, might promote–such is not always true, though!
As the cost to acquire customers skyrockets, retention becomes a top priority for brands. They experiment with new channels as digital advertising uncertainty rises in order to keep their business afloat during these trying times.
That being said, let us go into the specifics on how to know and analyse customer retention trends in your business. We’ll also dive into several ways to increase the lifetime value of your clients, so they’ll keep coming back for more.
How to Calculate Customer Lifetime Value
In a world where customer acquisition costs are high, and advertising uncertainty abounds, many brands have found success by partnering with voice-powered shopping software. These programs allow customers to find what they want without having input from an online retailer or store themselves in order for them not to be spied upon through their browsing habits that may eventually lead back into personal information such as email addresses on file servers somewhere out of public view (or even worse).
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This innovative use case has been gaining popularity because it allows both parties — brand & consumer—to provide value instead of the traditional “ pushed ad model” often seen today which typically only benefits one side: platforms like Facebook who make money off advertisers’ expenditure.
You can find lifetime value by collecting data on how much you have spent and what you will make in the future. This is not easy, but it is worth it. For example, the calculation of LTV can be done using the following formula:
Lifetime Value = Average Annual Profit per Customer / Churn Rate
Generally, the higher amount of money spent by an average customer will lower the churn rate. That is because it makes sense for people to stay loyal to a business if they make more money choosing that business.
- You can also calculate the value of customers by looking at different types of customer segments. For example, one product may have high acquisition costs but low retention rates, while another might have a small cost and a higher LTV.
- Another way to determine if your customer’s lifetime value is worth it is by measuring the cost of acquiring a new customer. For example, if you invest money in marketing and increase your business’s reach, but you don’t get high-quality leads, it will not be worth it.
The Cost to Acquire New Customers Surges
Simply put, the cost to acquire new customers is surging. It costs a lot of money to attract new customers, so increasing customer lifetime value will be essential to profit.
In the internet world, ad money follows the customer all the time. Despite the fact that total ad spending is expected to fall by 20% in 2020, digital ad spending is expected to rise by 13%. The drop in client acquisition expenses caused by the epidemic was brief. Facebook’s prices have recovered and are now at or near pre-pandemic levels. Paid search advertising grew by 17 per cent in late 2020, while paid social advertising increased by 24 per cent.
Digital ad growth is being accelerated by competition, which is being driven by the shift to ecommerce. According to industry statistics, there has been a rise in spending on sponsored search, social media, and linked TV.
Additionally, the cost to acquire new customers is on the rise because of the following:
- It is actually harder to get a new customer today because of stiff competition from other businesses. Your marketing dollars need to go a lot farther than ever before.
- There is a lot of free or cheap competition that has popped up over the past few years, such as coupon websites or social media.
- People can find lots of information about products and brands they like on the internet. They can even learn about other companies and how they work. This means you need to work even harder to get customers because your potential customers have more choices than ever before. For example, there are now review sites where people can find out what others think of how good or bad your service is…things which used to be kept secret!
As a business, it’s important to keep customers, and you need to know how and get more of them so that your profit can grow even faster!
Increased competition as more and more merchants move online. There are more rules on what you can advertise. Because of this, stores and processors have to spend more money on new customers. Then their profits will be lower and they won’t improve as much as before.
Brands Explore New Channels, Focus on Existing Customers
One of the ways to deal with the increased cost of customer acquisition is by exploring new channels, focusing on existing customers. As one of the most important metrics for a business to keep an eye on, increasing customer lifetime value can also help your business in general. In fact, it’s one of 5 key metrics that every business should be tracking.
By 2022, the value of voice commerce in the United States will exceed $40 billion. Despite the fact that the worldwide smart speaker industry is quickly expanding, the bulk of speech activity happens on mobile devices through virtual assistants. Consider optimizing your site, even if your consumers use voice-powered gadgets more as search tools than as shopping assistants.
More than 110 million, or roughly 84 per cent, of all U.S. homes, will have a linked TV by 2024. For the first half of the decade, spending on linked TV advertising is projected to increase by double digits.
Other displays are also seeing an increase in video commerce. Instagram is integrating new shopping capabilities into Reels, its TikTok competitor, indicating that Facebook views video as critical to the future of social commerce. Facebook is also looking at chat as a buying channel, with plans for in-app purchases in WhatsApp.
Given the several emerging channels, it’s important to focus on increasing customer lifetime value. This means making sure you get more money back than what you spend on acquiring them. This can be done by increasing product quality and usability or adding new features.
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What You Should Do In 2021: How to Increase Customer Lifetime Value
Step #1. Proper Prioritisation
One way to make your customers want to come back is to focus on them. You can do this by focusing on what they need, and not forgetting about them when you are dealing with new customers. Prioritization will create happy customers who will come back.
Ultimately, the objective is to enhance a customer’s lifetime value. Begin by identifying your most valued clients and the routes they took to convert. This enables you to concentrate on routes that lead to a better quality client base.
Create a lifecycle map for your clients. Determine how long it takes them to make a second, third, or fourth purchase, as well as the usual sequence in which goods are purchased. This allows you to speed up those transactions with customized upsell and cross-sell calls to action.
Step #2. Convenience and Rewards Systems
Some customers feel like they are not getting rewards even though they spend as much money. Rewards can make customers come back to the store because they don’t want other people to get a reward that they do not have access to.
To develop client loyalty, start a rewards program. Customers who join are 47% more likely to make a subsequent purchase.
- Integrate incentives so that they may be quickly redeemed at the checkout.
- Create loyalty levels that reward you with more significant incentives for making further purchases.
- Make reward points instantly redeemable.
- Provide VIP, exclusive, or early access to new goods.
- Enrollees should be given automatic admission into sweepstakes.
- Invite people to earn points by becoming members of your customer advisory board and telling you what they like and dislike about your product and brand.
- In order to show how soon an offer expires, use limited-time points, discount coupons, or even a countdown clock.
- Through referral programs, you may convert brand fans into a sales force.
Step #3. Offer Various Freebies
It’s a great concept that encourages consumer loyalty. Don’t be shy – consumers like it, even if they are aware that they are paying a little bit extra. Assume that almost 90% of buyers who have previously received such a gift say they are inclined to purchase more often from the business in the future. With purchases above a particular number, you might include free presents from old stock, new product testing, little cards, and other trinkets.
It may assist you in increasing your average order value (AOV) and establishing an emotional connection with your consumers, both of which will result in repeat orders. If your business sells a variety of brands, contact your suppliers and request samples to help promote their brand and product range.
Step #4. Increase Confidence Through Returns
Returns policies are one of the most important issues and difficulties for ecommerce businesses all over the globe. According to Paazl, it has a direct impact on profit margins, and although returns rates to brick-and-mortar shops are about 8%, this increases to roughly 25% for goods purchased online.
You undoubtedly want to make your customers’ purchasing experience pleasant, and as you know, almost 80% of buyers anticipate free shipping returns. However, in order to remain competitive in the market and make a logical choice, you must thoroughly examine all of the variables. Investigate what your rivals are providing to their customers and come up with solutions that benefit both you and your clients.
This ends our guide to customer retention trends in eCommerce. If you are having the same challenges with customer retention, it is time to explore new channels. You should focus on your existing customers and through the different strategies mentioned above.
Some of the strategies you can include in your LTV improvement are:
- Prioritize your customers through heightened concentration towards their needs
- Offer them absolute convenience through rewards systems
- Give your customers some freebies to upsell
- Establish confidence with your transactions through returns
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