Unlocking the Secrets of Customer Lifetime Value (CLV)

Acquiring a new customer can be up to 7 times more expensive than retaining an existing one, underscoring the cost-effectiveness of retaining current customers.

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A key thing to look at here is Customer Lifetime Value (CLV or CLTV). This isn’t just a number. It’s a really important metric for making strategic decisions for your customer's acquisition, and retention strategy, as well as making your business more profitable.

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In this guide, we’ll explain what CLV is all about. Let’s start exploring how your customers (and especially loyal customers) are essential for your business’s growth. 

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1. Understanding CLV: The foundation of profitable customer relationships

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1.1 CLV: A key metric for long-term success

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CLV represents the total profit a customer brings to your business over their entire lifespan as a customer. Unlike satisfaction-driven KPIs like NPS or CSAT, which only predict potential revenue, CLV offers a tangible measure of actual profitability over time.

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Let's have a look at some numbers:

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• It can cost up to 7x more to acquire a new customer, while it’s 5x more cost-effective to retain an existing one.
• The probability of selling to an existing customer is significantly higher (60-70%) compared to a new one (5-20%).
• You could reduce customer churn rates by 11% simply by reaching out to them.
• The likelihood of an existing customer making a second purchase in the first year is 32%, making a fifth purchase is 70%, and a tenth purchase is 83%. 

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There is a balance to be struck to acquire new customers and optimise their experience while developing profitability.

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1.2 Why emphasise CLV in business strategies?

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Implementing CLV calculations helps in setting a ceiling for customer acquisition costs, ensuring that each customer relationship is profitable. This strategic focus helps in aligning marketing efforts with business sustainability and long-term customer value.

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🤓 For example, If an e-commerce's average CLV is €1,000, and it costs more than €1,000 to acquire a new customer (advertising, marketing, offers, etc.), it means that it is likely to lose money.

This company should make strategic adjustments to reduce its acquisition costs and/or increase customer loyalty to increase CLV.

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1.3 How to calculate CLV

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Before diving into CLV calculation, remember that a solid acquisition strategy is vital.

Assessing Customer Acquisition Cost (CAC) through various channels like SEA, social ads, or affiliate marketing is key to understanding the full picture.

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<sup>The formula to calculate CLV is:
CLV = Customer Value (CV) x Average Customer Lifespan (ACL)

CV = Average order value x Average purchase frequency
ACL = Average of years a customer stays active (Nb of days between the first order and last order date) / Total number of customers</sup> 

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2. Enhancing CLV: 4 proven strategies

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2.1 Boosting the average transaction value Average Order Value (AOV)

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When you increase your average transaction value, you’re maximising your CLTV.

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To increase their AOV, businesses have several strategies at their disposal. Apart from raising prices, you can also sell more products in each transaction, a method known as cross-selling. Another effective tactic is product bundling.

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Cross-selling and product bundling can be implemented in various ways:

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Based on the product purchased: Suggest products that are directly related to the customer's current purchase. For instance, if a customer buys laptops for their sales team, recommend laptop cases as an additional item or part of a bundle. This approach can effectively increase the value of each transaction.

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Using sales or browsing history: Personalise offers based on the customer’s previous purchases or the products and pages they have shown interest in. This aligns the cross-sell or bundle with the customer's specific interests, increasing the likelihood of a larger order.

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Based on other customers' purchases: Inform your customers about what's trending or popular related to their interests. Influence their purchase decisions by suggesting products or bundles bought by similar customers.

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Incorporating User-Generated Content (UGC), like testimonials from satisfied customers, adds credibility to these suggestions and can persuade customers to opt for higher-value purchases.

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2.2 Create unique shopping experience to increase purchase frequency

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When buyers find that shopping is simple, enjoyable, or exciting, they're more likely to return frequently!

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Create a unique and effortless shopping experience on your website to enhance buyer’s experience:

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• Significantly simplify your menu by reducing the number of items,
• Implement a “sticky” feature for your menu, ensuring it's always accessible,
• Design clear, noticeable call-to-action buttons,
• Incorporate a breadcrumb trail for easy navigation,
• Focus on mobile-friendliness, ensuring the essentials are immediately accessible from the homepage.

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Ensure the consumer is guided in their purchasing journey. Utilise pop-ups not only for guidance but also to gather opt-in. Each visit presents an opportunity to strengthen the brand-customer relationship and enhance LTV. 

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Make it possible for customers to contact you at any moment. Implement solutions like customer support chat or customer service tools like Gorgias or Zendesk to achieve this. 

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Proactively responding to visitor queries, aiding in their decision-making, offering advice on popular products, and providing reassurance on purchases can initially increase the AOV and subsequently, purchase frequency.

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2.3 Make funnel and checkout simple:

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Optimise your customer journey with simple product pages that convert with:

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• Showcasing user-generated content (UGC) 
• Product pictures
• A simple description of the product's value-added features
• Customer reviews (clickable)
• Call to action “add to cart”
• Logo of trusted providers (Alma, Trustpilot…) for reassurance
• Magazine, influencer, media outlets: anything that will give you credibility to the visitor
• Clear shipping dates and returns policy

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_{Bigblue Tips
Bigblue's Fast Tags feature provides real-time Estimated Arrival Time (ETA) of delivery based on the customer location.
👉 Increase sales at checkout and show customers the quickest delivery option available for them with Fast Tags!} 

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What about the checkout?

A Baymard Institute study showed that 17% of online shoppers cite complicated checkout processes as a reason for abandoning carts. Other reasons included needing to create an account, unexpected costs like shipping and taxes, a slow checkout process, and a lack of trust on the website as a whole.

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A solution is to implement a single-page checkout with different payment options (card, digital wallet like Apple Pay, Buy Now, Pay Later like Klarna…).
9% of shoppers will abandon their cart if they can’t find their preferred payment method.

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<sup>Top 4 favourite payment methods: 
- Credit/Debit card
- Payment via digital wallets (Apple Pay or Paypal)
- Mobile payment (Amazon Pay, Revolut, Mobiamo)</sup>

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2.4 Enhance your post-purchase experience with tracking email and unboxing

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The post-purchase experience is a golden opportunity to turn customers into brand ambassadors. 

Engaging tracking emails, unique unboxing experiences, and educational content about the product can significantly impact customer loyalty.

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How to do it? 

• Put sponsorship and affiliation links in the tracking emails (possible thanks to Bigblue’s tracking feature!)
• Put forward special customer coupon codes in your email or written on your packaging, thank you flyers 
• Personalised packaging and free goodies
• Ask for customer reviews or UGC, and add a QR code to streamline the process!
• Push educational content on the product 

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Embracing CLV for sustainable growth

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Optimising your CLV is not just about boosting short-term profits. 

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It is about building sustainable, profitable relationships that benefit both your e-commerce company and its customers. By strategically aligning acquisition, retention, and customer experience efforts, you can unlock the full potential of CLV and drive long-term success.

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Are you ready to harness the power of CLV in your business strategy?