Everything You Need to Know About Customer Lifetime Value (CLV)
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Customer Lifetime Value (CLV) has become a must know term for eCommerce merchants of any size. It allows you to discover the true value each customer has to your store. But what most people don't know are the different ways to calculate it and the true impact it has on your business. In this discussion we cover everything you need to know about customer lifetime value. We present a few ways to calculate it as well as show some cases where CLV can impact a business. These cases will show what happens when you ignore lifetime value, and the benefits of making decisions with CLV in mind.
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Everything You Need to Know About Customer Lifetime Value (CLV)
- 1. Customer Lifetime Value (CLV or LTV)
- 2. What Is Sweet Tooth?
- 3. Who Uses Sweet Tooth? More than 4,000 retailers in over 40 countries. Over 20 million happy, loyal customers created.
- 4. Who Uses Sweet Tooth? A few of our 4,000+ clients
- 5. CLV is a way to know how valuable a customer is going to be to you over some period of time. What is Customer Lifetime Value?
- 6. Example of a store’s CLV: Average customer is worth $197 over the next 2 years. What is CLV?
- 7. Why Use CLV? Takes the guessing out of: SEM/PPC Advertising Customer Retention Spending Discounting, Promotions and more…
- 8. Why doesn’t everybody use CLV? Less than 5% of online stores know their CLV
- 9. Why doesn’t everybody use CLV? It’s complicated & intimidating…
- 10. Rough CLV >> No CLV
- 13. Simple & Inexpensive CLV CLV = AOV * APY * Profit Margin AOV = Average Order Value APY = Average Purchases per Year
- 14. Average Purchases per Year
- 15. Simple & Inexpensive CLV CLV = AOV * APY * Profit Margin Can be adjusted for any period of time
- 18. More Accurate Models Lifespan of a customer (t) Discount Rate
- 19. Accurate & Inexpensive Source: http://www.metricmogul.co.uk/tracking-customer-lifetime-value-in-google-analytics/
- 22. Simple & Accurate: Products/Apps
- 23. Calculating CLV Aggregate vs Per Customer
- 24. What can you do with CLV?
- 25. Segment Your Customers When you segment your customers you can gain valuable insight into what customers are the most profitable for you. 1. Acquisition Channel 2. Demographics
- 26. Acquisition Channel Segmentation Segment CLV by customer acquisition channel to determine how much to spend on each channel
- 28. Demographic Segmentation Segment CLV by demographics (e.g. location) to determine what personas to write content for.
- 30. Demographic Segmentation • Product descriptions • Blog posts • Videos • Branding • Promotions
- 31. Use CLV to Measure Improvement Set benchmarks. Know if CLV is improving! If you are not tracking you won’t know if you are improving.
- 32. Improve Your CLV Improve your CLV by increasing: 1. Average Order Values 2. Purchase Frequency 3. Life Span
- 33. Improve Average Order Value • Free shipping thresholds • Cross selling • Product bundles • Points programs (additional point thresholds)
- 34. Improve Purchase Frequency • Add elements of gamification • Email marketing (retention emails) • Loyalty programs
- 35. Improve Customer Lifespan • Provide amazing customer support • Create an amazing customer experience
- 36. Advanced CLV Applications • Cohort analysis – A/B testing – Marketing campaigns • Integration with internal support systems • Different CLV model comparisons & averaging – Polynomial regression – Bayesian inference – Pareto/NBD • Automated retention efforts
- 37. Do you calculate CLV? How? What do you do with that information?