Two Customer Lifetime Value Mistakes to Avoid in eCommerce

By Regina Ongkiko at Chronos Agency - July 24, 2020 512 Views
customer lifetime value mistakes chronos featured
By Regina Ongkiko at Chronos Agency - July 24, 2020 513 Views

It’s no secret that customer lifetime value (CLTV) is crucial for scaling your business. In fact, many 8-9 figure eCommerce stores choose to focus on this metric to maximize the value of their customer lists and ROI.

It’s also no surprise that these vendors’ preferred marketing tool is email marketing. However, there are a couple of customer lifetime value mistakes that every business owner must be aware of to scale effectively and avoid hiccups along the way.

Your Framework for Understanding Customer Lifetime Value

Before you go deeper into what most stores are doing wrong, you need to first understand the most important factors that can affect customer lifetime value.

Basically, the lifetime value of your customers is your customer’s value multiplied by the average customer lifespan.

As an equation, customer lifetime value looks something like this:

CLTV = (Number of purchases per year) x (number of years) x (average order value)

This is a simplified version of the formula, but it gives you a clear view of which metrics are important. If you increase any of these numbers, your CLTV will increase as well.

If we plug in some numbers we can see how CLTV works in practice:

Number of purchases per year = 5
Number of years = 2
Average order value = $10

If you multiply these numbers, you’ll get a CLTV of $100. And if you increase any one of them, like upping your AOV from $10 to $20, your CLTV increases too — in this case, to $200.

When it comes to boosting CLTV, it’s not advisable to rush in, which is why we’re addressing the two most common CLTV mistakes for eCommerce stores. It’s important to be aware of these pitfalls so you don’t end up making the same mistakes yourself.

Mistake #1: Spamming Offers That Don’t Focus on Customer Experience

A lot of eCommerce stores zero in on increasing the “number of purchases per year” value in the CLTV formula. They’ll send a ton of email marketing campaigns and promote offer after offer.

In the short term, this makes sense. After all, more promotions means more traffic. More traffic means more conversions and higher CLTV.

But if you’re gunning for long-term results (which you should), sending offers every other day will take away from the customer experience. You’ll risk sounding desperate, or worse, annoying your customers.

As a result, your list engagement will bear the brunt. You’ll start to see your purchases and clicks across campaigns start to fall, and doubling down with even more offers and messages will only make the situation worse.

If your customers don’t enjoy the experience you create, they will become disengaged and eventually stop opening your emails.

Worse, they can even report you as Spam, and your deliverability will take a nosedive. That certainly isn’t good for your CLTV in the long run either.

Mistake #2: Spraying and Praying

A lot of eCommerce stores would just send a generic email blast to everyone announcing their latest offer. But not all of your customers buy the same products. They have different tastes and preferences.

If you don’t tailor the message and the offers accordingly, you’re making more customer lifetime value mistakes, and your conversion rate will suffer.

If you only want to promote your latest product, for example, you can frame it differently according to your customers’ preferences, awareness of your brand, and other metrics.

Most eCommerce store owners resort to spraying and praying because it’s easy. They don’t usually have the bandwidth or capacity to drill down on segmenting their audiences and creating personalized messages. That’s why a lot of eCommerce stores choose to hire an email marketing agency that can function as an extension of their marketing arm.

How To Avoid Customer Lifetime Value Mistakes With Email Marketing

Check out these three email marketing action items that you can implement now to increase your CLTV.

1. Focus on Content and Separate Your Offers

Solid content will always convert more than generic content. This is because quality content has a way of pulling in customers and keeping them engaged. If they are engaged, they’ll definitely open more emails, read more emails, and buy more.

Basically, don’t just send offers all the time. Send content that will support these offers and send them to specific segments.

For example, you can send reviews of a certain item to a segment of subscribers who have recently viewed that specific product.

Next, separate your offers. Don’t send out offers for particular products to people who just bought them! Only provide offers to your customers who haven’t bought anything recently.

2. Segment Your Audience

It’s been proven that segmentation produces results because it helps eCommerce stores deliver personalized emails and offers to each customer. Personalized emails generate six times the revenue of ‘sprayed’ emails.

Plus, 8-9 figure eCommerce stores rely on advanced segmentation strategies to help boost their CLTV. There are just really so many ways to proceed with this, but here are three quick tips to get you going:

1) Segment by Product Interest

Keep sending reminders and follow up emails to customers who have viewed a product more than once. They’re interested, they just need a little nudge.

2) Segment by Frequency of Purchases

Continue engaging with your regular customers to sustain their interest. You can also send them recommendations for high-value products that complement their recent purchases.

3) Segment by Activity During Sales Events

There will always be customers who only buy from stores during sales events or special promotions. Put them in a segment and send them special announcements every time a sale event is coming up.

3. Add a Personal Touch

How the emails are crafted also adds to the whole personalization effort.

Remember that you have to create emails that will appeal to your customers. And yes, this is different for every industry and every store.

If you don’t know what works best for your business, A/B testing is a must.

Prioritize these tests first:

  • Long copy vs. short copy
  • Copy-heavy vs. design-heavy
  • Direct vs. indirect messages

When it comes to A/B testing, it’s important that to run your tests enough times to get statistically significant results. Documenting your results is also very important. Remember, you’re doing this so you can find the perfect formula for emails that will convert.

Testing takes time but it’s worth it. Chronos clients often see a 30-50% increase in our email conversion in a short period of time (some of them even see 100-300% increase within a couple of months!).

Final Thoughts on Avoiding Customer Lifetime Value Mistakes

Knowing what mistakes to avoid will not only save you time—it will also steer you in a clearer direction as you aim to increase your CLTV. You can get right down to business doing the things that really matter and work.

If you want to talk more about specific actions you can take, you can join the new exclusive Facebook community called the eCommerce Email Lab. It’s a tight community where eCommerce experts interact with one another and discuss everything from strategy to implementation.

CLTV is as complicated as it is important. But with the right email marketing strategy, you’ll be able to implement strategies that will get you to your goal.

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