It’s easy to assume that all customers are equal. After all, a customer’s a customer –right? More or less?
Not even close.
The truth is that not all customers are created equal; at least when you consider things from a financial standpoint. In fact, the top 1% of e-commerce customers are worth up to 18 times more than average customers.
When it comes to customer retention, it’s no secret that the longer your customers’ lifetime at your company, the more they’ll spend over time. For companies then, having a robust customer retention strategy in addition to a plan for customer acquisition –is important.
And since it can cost five times more to generate a new customer than it does to keep an existing one, putting some time and effort into keeping your customers longer is a far more cost-effective strategy. Plus, it’s just good business.
With this in mind let’s explore some sure-fire ways to, not only draw customers in, but keep them around longer.
Lifetime Value (LTV): Why Does It Matter?
Does lifetime value matter?
The short answer? Yeah, it matters a lot.
The long answer? Grab a cup of coffee and read on, we’re going to find out!
Here are a few benefits that come from tracking your customers’ LTV.
- Enables You to Create More Targeted (And Effective) Advertising Campaigns
Identifying your customers with a higher LTV will show you where you should be focusing your efforts. You’ll be able to create more targeted marketing and advertising strategies, and content and ads that are designed for that specific segment of customers.
- Increases Your ROI
Knowing your customers’ lifetime value will give you an excellent benchmark that you can use when assessing advertising and marketing efforts. It will allow you to ensure that you’re not wasting money on campaigns that may draw customers with a low LTV, and show you where you should be focusing your efforts.
- Shows You Where You Should Be Spending Money
Tracking LTV will show you where you should be spending your money. Tracking LTV instead of just profit or purchases will show you how much you can afford to spend on customer acquisition. This can help to give you an edge competitively, since you’ll have a more accurate idea about how much, exactly, you can spend.
Now, let’s look at how you can go about improving your customers’ LTV.
Improve Their Experience
Customer satisfaction matters. This is hardly surprising, but in the battle to score new customers, it’s one of those things that’s easily forgotten.
The truth is that customer satisfaction should be written into your company process. It should be the driving force behind everything that you do. If you don’t make it a priority, it will be forgotten.
Since research shows that just a 5% uptick in customer retention can increase profits by 25% to 95%, it’s worth improving those customer retention rates! And, by extension –worth keeping your existing customers happy.
Now, let’s see how you can do that.
As a webstore owner, your goal should be to improve your customer experience. As Matthew Dixon, Nicholas Toman, and Rick DeLisi explain in their book The Effortless Experience, if your customers don’t have a good experience, or aren’t treated well, they’ll be unlikely to come back. In fact, Dixon recommends that companies work on improving the customer experience, first and foremost, before investing any time or money into additional rewards and incentives –or general attempts to “delight” the customer. Ensuring that your customers have a seamless, straightforward experience is the best way to keep them coming back for more.
Since this is such a vital step, let’s take a look at a few different ways that you can create a better customer experience for your online visitors.
- Give Them a Speedy Check-Out Experience
Your customers are on your website, primed and ready to spend their hard-earned money with you. The last thing you’d want is to make it difficult for them to do so! This is one of the more obvious things that you should do, but you’d be surprised at just how often it’s overlooked by companies. Instead of making your customers spend 15 minutes jumping through multiple hoops to buy from you, look to reduce the number of steps that they have to take, and help to ensure that they have a seamless shopping experience.
- Provide Web Chat Assistance
Another key to ensuring a straightforward check-out experience, having a web chat option on your site can help to make the process that much easier. If a customer’s stuck or just has a question about shipping, web chat allows you to easily address their concerns, remove potential obstacles, and make it easier for them to go through with their purchases.
- Ensure That Your Reps Are Friendly and Helpful
Want to know one reason that people don’t return to stores? It’s because of how they were treated by staff. While as a webstore, your reps won’t be interacting with your customers in-person, they’ll still interact with them on the phone, via email, and on social media. Not to mention with web chat. Ensure that your team –the people that your customers will be interacting with, are well-trained to address any issues that the customers are having.An example from Zappos –legendary customer-service experts and online shoe and clothing retailer, helps to drive home this point. Zappos service reps are so helpful, that they’ve been known to provide help for things that have nothing to do with shoes, even going so far as to order the occasional pizza for their customers who request it via the customer support line. While this doesn’t mean that your company has to go quite that far, there’s a lesson to be learned from Zappos. They’re doing customer service right, and it shows.In addition to ensuring that your team is well-equipped to handle any customer questions, consider giving them freedom when it comes to making executive decisions that’ll help to make your customer’s day a lot better. You could give your high-level associates the freedom to offer refunds, discount codes, gift cards, or free shipping, as and when appropriate.Also, when your team’s happy, your customers will be too. Pay your team fairly and make sure they’re not overwhelmed, overworked, overscheduled, OR underpaid.
- Get Customer Feedback
Really want to find out how you’re doing? Asking your customers for their feedback can help you to see areas where you’re excelling, and highlight places that may need some improvement. This will show you exactly where you can make improvements that matter to your customers, further increasing customer retention.
Note: you may THINK you know where you’re excelling, but chances are you’re mistaken. In fact, according to Matt Dixon, while customers tend to be underwhelmed by companies on a whole, companies feel that they’re succeeding in delighting their customers. Clearly, there’s a disconnect.
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Increasing LTV: Additional Tips
In addition to improving your customers’ experience, there are a few extra things that you can do to help increase your customers’ lifetime value. Here’s a look at a few now.
- Identify and Segment Customers That Have the Highest Lifetime Value
Before you start, it’s a good idea to determine which customers, or which segment, has the highest lifetime value. While you can do this on a case-by-case basis, it may be easier to instead segment your customers and run the numbers on the groups. A tool like this one on HBR can be a great way to find out which customers have the highest LTV.Once you’ve identified the group with the highest LTV, you can then determine how you should tailor your advertising and marketing efforts to attract similar customers.
- Choose Your Communication Channels
You’ll also want to take a look at your communication channels, to see which one’s producing customers with the highest lifetime value. This will involve identifying which channels are not just sending customers your way, but sending customers that are sticking around longer, and spending the most. Once you’ve identified the best channels, taking LTV into account, you’ll know where you should spend your ad dollars.
- Introduce a Loyalty Program
Implementing a loyalty program can help to keep your customers coming back. Consider offering rewards or gifts for repeat purchases. Or, consider sending out a thank you email –with a 10% discount coupon, to customers who make a purchase over a specific dollar amount. This will reward customers who spend more with you and encourage them to come back again.
- Start Email Marketing
If you don’t have one already, a strong email marketing strategy can help you to improve your customers’ lifetime value. Email can be an excellent marketing tool, and it’s a great way to keep your customers up-to-date on new products, developments, sales, and more. Raising awareness will help to keep your company top-of-mind, increasing the likelihood that your customers think of you first the next time they need a product or service that you offer.
- Offer Auto-Ship/Recurring Billing
If you sell a product that customers tend to buy regularly, consider implementing an auto-ship program with recurring billing. With a subscription, your customers will never run out of their products. And this means they’ll be less likely head to Google to search for the product, and order from someone else.
- Engage With Your Customers on Social Media
Ideally, you’ll want to maintain a strong social media presence. Don’t have the resources to be on every social media channel? No worries! Just pick two of the major ones –Facebook and Instagram, or Facebook and Twitter, and maintain a presence on there. Social media has become a popular channel for customer complaints and is even outperforming email in terms of popularity. When your customers have concerns or issues, they’ll most likely to head to social media to air their grievances. If you can catch them on social media, and address their concerns before they spread the word, you’ll be able to do a lot in terms of damage control –and will be able to help keep your customers happy.
- Look to Solve Problems for Your Customer
Finally, look to solve problems that your target customer is facing. “Go beyond your actual product and give them something that makes their life easier on a regular basis,” says Mike Bal, Director of Social Media and Content at Single Grain. “Neil Patel did this with his website analyzer on QuickSprout, and Portent did it with their content idea generator.”
“Understand your customer, figure out what would make their life easier, and build it,” Bal continues. “When you can pull this off right, you make your customer rely on you for more than just your product or service, and that makes you almost irreplaceable.”
What About Products That People Don’t Order Frequently?
What do you do if your customer base only needs your product every couple of years, or as in the case of my company, RTA Cabinets, maybe only once in their lifetime? You look to increase the average order value (AOV). Yes, in some cases, the average order value can also be your lifetime value, so try to find complementary products that you can upsell before they complete their purchase.
Calculating LTV If You’re a New Company
How do you calculate LTV if you are a new company? This can be a challenge, without enough data. Generally speaking, you will need to have at least one year’s history to calculate the LTV, but this varies. In some cases, you may figure out that your customers only order from you for 6 months and then drop off; in other cases, it might be two years –or longer. The point is that LTV can vary by company and by industry, so it is important to keep measuring and testing how you can extend LTV.
Other Ways to Increase LTV
What if you sold them everything that you possibly can? How do you increase LTV?
In these cases, data is key. Look for ways that you can leverage that customer data. Some options might be selling ad space in your emails, selling the customer list to another company, or affiliate offers for complementary products that you don’t already sell.
While calculating LTV is somewhat more involved than just looking purely at profit or treating each purchase equally, it’s an extremely valuable metric nonetheless. By taking the time to track your customers’ LTV, you’ll be able to gain access to valuable data that you wouldn’t otherwise have, giving you intel that you need to make smart marketing decisions, showing you how much you can spend on customer acquisition, and highlighting where you should be focusing your efforts.
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