Customer Lifetime Value (CLV) has become the number one buzzword in the world of direct-to-consumer retail. At the latest CommerceNext summit – a yearly retail and ecommerce conference focusing on customer acquisition, social media strategy, and retail growth – marketers and retail executives from all around the world mentioned CLV in every session.
However, few of these retailers were actually talking about CLV in its purest sense. Instead, they discussed customer acquisition and net promoter score in its place. While these measures are related to CLV, they don’t encompass its true and holistic definition.
If you’re going to develop a strategy for growing your CLV, then you first need to be able to agree on what the definition of CLV actually is: a measure of a customer’s actual or likely value to your business over their lifespan as a customer.
In other words, how much have your customers spent with your business already? How much are they likely to spend in the future? The sum of those two values is your CLV.
At a glance, that might seem like a simple equation. But after our roundtable discussion at CommerceNext, we were genuinely surprised at the number of companies who weren’t measuring CLV.
Before You Can Grow Your CLV, You Need to Understand How to Measure It
Typically, subscription-based businesses have the easiest time calculating their CLV; they simply multiply the average monthly contract fee by the average duration of a customer’s subscription.
However, if you’re selling something like apparel, shoes, or skincare, the frequency and cadence of these purchases are much more volatile and much more difficult to predict. In these cases, to calculate CLV you need to know these three key measures:
Average order value (AOV): the average dollar amount spent each time a customer places an order.
Purchase frequency per year: The number of orders a customer places per year.
Lifespan: The total amount of time a customer will spend with your brand, from first to last order.
It’s the last measure, lifespan, that presents the biggest challenge. Why? Your customers all purchase different items at different times—and who can say exactly how long each customer’s lifespan will be?
If you don’t have all your customer data consolidated into a single view or a data science team to help you calculate CLV, don’t worry. Your CLV is influenced by each of these measures, so you can grow your CLV by deploying strategies that target each of these elements separately.
During our CommerceNext roundtable discussion, we sourced 9 unique and effective strategies for doing so from industries ranging from cannabis and shapewear to dietary research and premium network TV.
Here’s what we learned.
How to Grow Your CLV: 9 Practical Tips from Industry Leaders
1. Revamp your customer acquisition strategy
If you’re of the mind that “all business is good business,” then your customer acquisition strategy might be the cause of low CLV.
The fact is, you can acquire bad customers. For most DTC brands, the top 20 percent of customers will make up 50–80 percent of their sales. Why waste your time, money, and effort trying to acquire customers who look like the bottom 80 percent and only make up 20–50 percent of your sales?
Instead, use your customers with the highest CLV to build lookalike audiences for targeted acquisition. When you do that, you’ll improve your return on ad spend (ROAS) and attract customers with a greater likelihood of making multiple, high-value purchases over the course of their customer lifetime.
One company used this strategy to grow their campaign revenue by 94 percent. Click here to read their story.
2. Time your incentives to drive the second sale
Many DTC brands are struggling with high volumes of one-time purchases.
For example, we had roundtable attendees who sold tires, flea and tick repellent, and premium linens – products that aren’t purchased at a great frequency because of their price point, utility, and longevity.
So how do you grow your CLV when the majority of your customers purchase once and never again?
By analyzing the time between first and second order by product category, you can pinpoint the window of time when customers are at the greatest risk of churning and when they’re most likely to make a second purchase. Understanding these windows of time allows you to take action and share the right message at the right time to drive the second purchase.
If you know, for example, that the majority of your customers make their second purchase within the first 30 days of their first purchase, then you can send them a special offer like free shipping that expires within 30 days to encourage them to buy again within that time period.
3. Maximize your most effective channels for acquisition
Some channels are more effective than others for customer acquisition.
By measuring the CLV of your customers by channel of acquisition, you can gain a better understanding of which channels, offers, and messages are most effective for attracting high-value buyers.
For example, if your highest-CLV customers come in through a paid Facebook ad offering a discount on their first purchase, then you can double down on that strategy to attract more of the same types of customers.
4. Reduce your churn by tracking measures of engagement
For many businesses – and especially those with subscription-based revenue models – retention is the biggest driver for growing CLV.
Every upgrade, monthly fee, and additional product purchase is another boost to the overall value of a particular customer. Therefore, strategies that improve retention rates also boost CLV.
Engagement metrics such as email open rates, website visits and customer support interactions can act as early warning signs of churn risk. By tracking these early leading indicators of churn and intervening to re-engage customers before it’s too late, you can reduce your overall churn rates and, in turn, increase average customer lifespan and CLV.
5. Build a community with user-generated content
Nothing boosts CLV quite like building a community of loyal, engaged, high-value customers.
One simple, low-cost means of building that community is by sourcing user-generated content to share across social channels. Especially in industries with emotive categories like pets and wellness, user-generated content can increase engagement rates, reduce churn, and improve your overall CLV.
For example, if you’re selling all-natural wellness products like dietary supplements, then many of your customers may come to you when they’re trying to make a lifestyle change. By encouraging customers to talk about their own experiences with the product on social media and sending monthly or weekly lifestyle tips to new customers, you can better support your customers in actually making the lifestyle changes they need to use your product successfully and indefinitely.
The viral, highly personalized nature of this content leads to happier customers, more effective product usage, and word-of-mouth marketing for low-cost customer acquisition.
6. Respond to every product review – both positive and negative
Another way to build a thriving customer community is by responding to every product review left on your website.
If a customer leaves a positive review, thanking them for their feedback helps solidify the connection they have with your brand, and they’ll be more likely to purchase again in the future. If a customer leaves a negative review, you can ask for more information and offer help to improve their experience. In some cases, this strategy may help you win back dissatisfied customers, ultimately extending their CLV.
Obviously, responding to every single review may not be realistic as your business scales, but it’s a great way to cultivate a positive online presence and extend the value of your customers while you still have the bandwidth to do so.
7. Determine your hero products for attracting high-CLV buyers
Some products are better than others for attracting high-value customers.
For example, a clothing brand found that customers who first purchased jeans went on to spend three times more than customers who first purchased graphic t-shirts.
Segment your customers by the category of product that they purchased first. Look for the categories that have high volumes and high CLV – these are your hero products. By adjusting your advertising efforts around these products, you will acquire customers who have a greater probability of going on to higher CLV.
Take this product-based analysis one step further by looking at the most common second purchase for each product category. If you know that people who buy tops have a greater tendency to come back and buy bottoms, then you can use that information to influence their next purchase as well.
8. Personalize your recommendations
Personalization has been a priority in the marketing world for many years – and it’s no wonder when 80 percent of consumers are more likely to shop with brands that offer personalized experiences.
Luckily, collecting and analyzing your customer data can give you all the context you need to create personalized campaigns.
Consider the products that your customers commonly view on your website, but don’t purchase, as well as the products that they’ve purchased in the past. Based on that information, you can tailor your product recommendations to improve the customer experience and encourage future purchases.
One great way to use personalization to grow your average CLV is by offering a loyalty program. This way, you can reward your customers based on their individual activities and purchases and drive up their overall CLV.
9. Experiment with dual-channel engagement
If your email subscribers are opted out or aren’t opening your emails, then your marketing messages aren’t getting through. What good is it to personalize your outreach, offer time-bound discounts, or use any of the other tactics described above to grow your CLV if your messages aren’t even being read?
Typically, industry best practice for winning back unengaged or opted-out email subscribers is to send fewer emails and wait for them to come back. But just because they’ve unsubscribed or stopped engaging with your emails, that doesn’t mean they’re no longer interested in your brand.
Instead, use other ways of communicating with your unaddressable email list – such as paid media or direct mail – to win them back and maximize their CLV. When you use your customer data to bridge the gap between online and offline channels, your ROAS will almost always be more favorable than it would be from basic prospecting.
Tap into Your Customer Data to Grow Your CLV
Every interaction that a person has with your brand—from the first time they click on one of your Facebook ads to long after they’ve become loyal, repeat buyers—can impact the average CLV they contribute to your company.
Optimizing those interactions at every stage of the customer lifecycle can increase your revenue and help you grow your business efficiently and effectively. These 9 practical tips can be applied across any industry to maximize your CLV, but there’s one common thread that makes each of them possible: Customer data.
Customer data platforms like Lexer can help brands access a single, unified view of their customer segments; create intelligent predictive models to understand what their customers are likely to do next; and develop hyper-targeted marketing campaigns to attract, retain, and delight high-value customers.
Ready to join the community of innovative retailers using advanced customer data analytics to grow their CLV?