If you have been long in the e-commerce business, you would definitely be aware of the pain.
So, what is your primary focus?
Grow customer base? Make more sales? Focus on existing customers?
Growing customer base and making more sales go side by side. You achieve one and the other will definitely come to you. So, you will earn handsome profits, isn’t it?
If this is your theory, beware!
Preferring customer acquisition over customer retention may prove a disadvantage in the long run.
Data show that existing customers are worth around ten times their first transaction and they are up to 65% easier to sell than the new customers.
Some studies even demonstrate the statistics as just an increase of 5% in customer retention has led companies to 95% profit.
So, if your goal is to maximize profits, the correct answer must be focusing on existing customers.
“Retaining customers and not gaining customers” is the key to a profitable business.
Now that you know how important customer retention is, your foremost step must be spending your resources in increasing customer lifetime value.
What is Customer Lifetime Value (CLV)?
It is the amount a customer is worth to you throughout their relationship with your business – right from their first purchase to their last one.
The longer you can keep a customer, the greater becomes their customer lifetime value.
How will you calculate CLV?
Just apply the below formula and you will get to know your Customer Lifetime Value.
(Average value of Sale) x (No. of Repeat Transactions) x (Average Retention Time in months/years for a typical customer)
Let’s consider an example for a better understanding.
You own a gym. Consider the below figures now:
Now, calculating your CLV with the above formula:
CLV = ($20 + $10 + $10 expenses) X (11 transactions) X (2 years) = $880
So, it’s easy to calculate CLV once you figure out the data.
Why would you require calculating CLV?
Simple! You get a clear idea of whether your business is growing or falling. And, if it is falling, you are in great trouble.
Here are 5 sure shot ways that will help you boost your Customer Lifetime Value (CLV).
1. Upsell and Cross-sell Products
This technique focuses on generating more sales per customer.
For example, restaurants prompt us with some questions or offers to upsell or cross-sell their products at checkout:
Upsell means you are selling customers something that they are already interested in but with a little betterment and a higher value. This absolutely attracts the attention of customers.
Amazon is the perfect illustration of cross-selling products. Whenever you search for anything, let's say, a tunic. At the time you select a tunic of your choice, Amazon also prompts some jewelry, handbags or heels that would complement your tunic in one way or the other.
So, you can integrate your cross-selling products directly into the checkout process as per the purchase of your customer. This will yield you profits for sure.
2. Strengthen Customer Relationship by sending value-packed Emails
Email marketing is one of the best ways to retain your customers. Again, it is not mandatory that every email you send promotes your new products without offering any value.
No doubt, customers follow brands online so that they could benefit from special discounts. At the same time, they also appreciate anything that either educates them or entertains them.
With email marketing, you can grab your customers' attention. What you must focus on is providing value rather than putting a sale. Ensure that the value you put matches your customers' interests and needs. This process is cost-effective and highly effective.
3. Offer your customers something that others might not offer them
This way is something that can take any form. Bear one thing in mind, your offer should not change the industry. Rather, it must be something that differentiates you from your customers or something worth that your customers would take note of. It can be as simple as a lower price, a freebie, a reward perk or money-back guarantee.
The best-suited example of this is Netflix. It has established its streaming service in such a way that customers keep coming back to them. Whether it is their in-store movie rentals or on-demand content streaming, it has and is still winning the heart of its customers.
4. Personalize your customers’ shopping experience
As per a report, 88% of the customers say that they are more comfortable to shop with brands that offer them a personalized experience.
Amazon again stands as the perfect example here. Amazon’s homepage is completely customized as what is most likely going to interest the customer. It is tailored in such a way that no two customers are expected to see the same content. And, its data reflects how much customers value their service.
According to Swirl Networks survey 2015, 56% of customers said that Amazon showcases a perfect understanding of their preferences consistently.
So, it is essential that you personalize your customer’s experience in a way that helps them easily access information or products they are looking for.
5. Reward your customers with Customer Loyalty
If you are looking forward to having your customers come back to you more often, then consider creating a loyalty program that pays them back for their loyalty. You can even offer great discounts as rewards. Adapting this would encourage your customers to spend more with your brand.
Researches show that businesses who run loyalty programs earn 88% more profit as compared to those who don’t.
Never cease on customer acquisition. But, shifting your focus on customer retention would surely increase your Customer Lifetime Value. This will help enhance your business and improve profits.
In long run, you will observe that this methodology has cost you less but made you earn more.