CLV vs LTV: life or death ecommerce metrics

Have you ever wondered which metrics are right when evaluating the worth of a customer? How brilliant would it be if you just knew who your best customers are?

What do you use to identify the future worth of your customer?

Two metrics come into the picture when answering these questions, customer lifetime value (CLV) and lifetime value (LTV).

Today it’s not just about launching a campaign and getting short quick profits from customers. You need to get them coming back for more.

In this post, we explain CLV and LTV, their importance, and their differences.

What is CLV?

Customer lifetime value is the total worth any individual customer brings to your business in the duration they interact with your brand.

To calculate CLV, you need:

  • Average order value
  • Average purchase frequency rate
  • Average customer lifespan

CLV = Average order value x average purchase frequency rate divided by average customer lifespan

What is LTV?

Lifetime value is similar to CLV, but the difference is it’s a collective lifetime spend of customers. Unlike CLV, which calculates individual customers, LTV is a total sum for all your customers.

Why Customer Lifetime Value is important

You should always measure your CLV because it has benefits such as:

1 | Reduced customer acquisition cost

Selling to a new customer is expensive. As Markin reports in this article, you have a 60-70% chance of making a sale with an existing customer compared to a new customer, which is 5-20%.

Huge margin, right?

It, therefore, only makes sense to go after the customer who is most likely to spend the most money based on data.

This will reduce the costs you use to acquire customers.

2 |  Predict buying likelihood

When you can predict the likelihood of people buying, you’re able to target ideal customers with proper marketing messages that will resonate with each section of your customers.

3 | Increase your revenue

One of the most significant benefits of knowing your CLV is it increases your overall store revenue. Knowing your most loyal customers will help you create better services like reward programmes and discounts for them. This ensures you have healthy customer relationships.

How to improve Customer Lifetime Value

Here are a few ways to boost your customer’s lifetime value:

1 | Increase average order value

Average order value directly impacts your CLV, thus making it one of the critical areas on which to focus.

Here are AOV strategies that actually work:

  • Upselling and cross-selling
  • Free shipping on minimum orders
  • Understanding your customer buying journey

2 | Post user-generated content

As human beings, we love being part of a ‘herd’. If your followers see that you are posting lots of user-generated content, they are more likely to want to buy from you.

Also, UGC makes your customers feel appreciated and more likely to get more people talking about your brand. You can also include contests.

3 | Ask for customer feedback

Every chance you get, ask your customers for feedback instead of just figuring out things yourself.

You can ask them what they liked or disliked. What products or upgrades would they like introduced?

Alternatively, you can have a lead capturing quiz.

Some tools you can use for customer feedback are SurveyMonkey and LeadQuizzes.

4 | Respond quickly to customers

Instant gratification is part of human nature; we want things straight away. Customers want a response even quicker when there’s an issue with a product.

Responding quickly to customer queries and providing relevant solutions goes a long way in encouraging positive word-of-mouth marketing. It shows your customers that you genuinely care about them.

Tracking word-of-mouth online is easier.

The real hurdle is offline, which is why we created Herdify to help you detect where actual conversations around your brand are happening offline and to help you influence community discussion.

5 | Have an awesome customer care service

Besides social media and your blog, customer care service is one of the touch points influencing customer experience.

Remember, even your customer care service represents your brand; if it’s awful, it could hurt your image.

Here are tips to have excellent customer care service:

  • Respond positively to negative feedback.
  • Be an active listener.
  • Understand customer expectations.

6 | Offer loyalty programs

Subscriptions are great for customers who often buy from you. To create a sense of urgency, let it be exclusive to a group of customers who meet certain requirements.

For customers who don’t meet the requirements, you can offer points that allow them to get discounts on their next purchases.

Takeaway

Creating a great customer experience equals a high customer lifetime value which equals high revenue. If you can just invest in probably 2-3 strategies, you might be good to go.

Friends in conversation | Herdify

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