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Sunnyvale, California — Did you know that 65% of your business comes from your existing customers? Therefore, it’s crucial to focus on retaining your customers and earning their loyalty. You have to ensure they are satisfied with your products and services. This is where Customer Lifetime Value comes in! It’s a crucial eCommerce metric that measures total revenue generated from a single customer throughout their business relationship. It tells you how much business they bring to your company.
With Customer Lifetime Value (CLTV), businesses can learn about their long-term growth and financial viability. Appstle, a leading app provider, offers loyalty and subscription apps for Shopify and Shopify Plus merchants to help them improve their customer retention and lifetime value. Their experts have explained the importance of Customer Lifetime Value and ways to calculate it.
How to Calculate Customer Lifetime Value
Method 1: Average Estimate Method
This method takes the average order value (AOV) and the number of orders a customer places and gives you an estimate. The average estimate method is suited for new businesses without sales history and for those who want to get an estimate before launching their eCommerce store.
The formula for this method is:
CLV= AOV x n
Method 2: Accumulated Data Method
This is the most common calculation method that established businesses can use to calculate CLV. It uses historical sales data to combine all orders from an individual customer to determine their accurate CLV.
The formula for this method is
CLV= Order 1 + Order 2 + Order 3 + …… + Order n (n= number of orders)
Why CLV is Important for Your Business
Customer Lifetime Value directly impacts the bottom line of a company. If your business relies on conversion and you need new customers to generate sales, you have to pay the acquisition cost for each new customer, which leaves a small profit margin. Once you improve your CLV, your existing customers will make repeat purchases (generating sales and profit) so you don’t have to pay the acquisition cost for them since they’re already acquired.
This way, you get the complete profit margin on all repeat purchases that covers up the customer acquisition cost you had to pay initially. As a result, your return on investment and profit margin will increase.
Ensures a Healthy Cash Flow
Repeat purchases allow businesses to maintain a steady cash flow. This way, you will have access to enough capital to make necessary payments on time and invest in growth opportunities.
Acquire More Customers
Acquiring a new customer can cost 5 times more than retaining an existing one. Despite being costly, a business has to bring in new customers for growth. A good CLTV allows you to have enough funds to acquire more customers than you could afford before. Research shows that loyal customers spend 67% more than other customers. This extra revenue can be invested in acquiring more customers and generating more sales.
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Make Data-Driven Business Decisions
Customer Lifetime Value tells you about the value each customer brings to your business, so you can predict the financial viability of your company. This ultimately helps you make data-driven business decisions for better outcomes.
If you want to boost your Customer Lifetime Value, consider investing in a good membership, subscription, or loyalty program. These business models and programs encourage your existing customers to make repeat purchases, attract new customers and increase the frequency of orders. You can download membership apps or subscription apps for Shopify or Shopify Plus from Appstle. The company offers advanced and user -friendly apps for merchants so they can create a fully customized customer retention program. Visit their website to learn more about their Shopify apps or contact them.
Company Name: Appstle