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How to increase customer lifetime value on Shopify

customer lifetime value

The acquisition of clients is a time consuming process. However, with the evolution of the privacy panorama and the decline of third-party cookies, costs seem to be relentlessly increasing. The situation could appear intimidating, but we are here to help. In this article, we will show you some strategies in the e-commerce sector that can maximise your customers' loyalty and their long-term value, as well as tips on how to attract new customers at a lesser expense.

 

What is Customer Lifetime Value (CLV)

Customer lifetime value is a concept used by companies to evaluate how economically important a client is over the long term. In other words, the CLV represents the expected revenue that a client will generate through their future purchases during the whole time they remain a company's client.

Calculating CLV is fundamental, as it helps understand how much potential revenue each client can generate and allows you to plan marketing and branding strategies accordingly. CLV takes into account not only the expected revenue a client might create in the future for a business but also the necessary costs for maintaining them as a client over time.

Imagine you sell a product for €300. A customer who only buys that product once will have a very low CLV. However, if the same customer likes your products and makes purchases worth €300 per quarter every 3 months and does this for 3 years in a row, his CLV is quite different and much more profitable. In fact, his CLV will be € 300 x 4 (times per year) x 3 years = € 3600.

From this point of view, CLV is important because it helps companies concentrate on the most profitable clients, improving their loyalty, and optimising marketing strategies. However, it is fundamental to remember that the CLV is just an estimation and can change based on several variables; therefore, it requires constant monitoring and periodic revision.

So how can CLV be improved, especially if we are present on platforms such as Shopify? 

 

Building a community

The constant inflation increase in 2023 is obliging many clients to cut expenses where possible. Thus, this is a crucial moment for offering clients a compelling reason to invest their funds. How? One of the most efficient ways is to build a solid community around your products or services. An established community can help clients not consider your products mere "purchases", but rather essential parts of their lifestyle or identity. This change prevents your products from being set aside when clients try to save money. The central point is indeed building a strong bond with your clients.

In addition to promoting brand fidelity, building an emotional bond with your community can increase client retention and strengthen your visibility. The more clients feel satisfied and engaged, the more they are keen to share their enthusiasm on social media, write positive reviews, and participate in referral programmes (we'll take a look at them shortly).

 

Offering exceptional customer service

An exceptional level of customer service is a fundamental component for the success of an e-commerce business because it significantly contributes to the client's loyalty. When clients have a positive purchase experience and receive prompt and professional assistance, they tend to develop a relationship of trust with your brand, which increases its social proof. This trust boosts the chance clients will come back for future purchases, increasing their long-term value for your business. Furthermore, satisfied clients often share their positive experiences with friends and family, generating a positive referral that can attract new clients.

Secondly, high-quality customer service can differentiate you in a highly competitive market. In an era in which clients have a lot of options from which to choose, the service's quality can become the determining factor in the purchasing decision. When clients see that your brand distinguishes itself for customer attention and care, they are more likely to prefer you to the competition. This can help you build a solid reputation and distinguish yourself as a reliable and trustworthy business. Also, good customer service reduces the likelihood of returns, helping you save on operational costs and maintaining a loyal and satisfied client base. In short, investing in customer satisfaction is a crucial step for the success and sustainable growth of your e-commerce business.

 

Referral and loyalty programmes

Once you have established an authentic bond with your clients, it's possible to transform those who are more engaged into real supporters through the implementation of a referral program. A solid referral programme represents an excellent method to attract new customers that already trust your brand by using people's natural inclination to buy products that have been recommended by friends or relatives. Although there is space for paid advertising, we should not overlook the precious contribution of a personal referral, as it can noticeably reduce acquisition costs and increase new clients' long-term value.

Loyalty programmes, instead, encourage clients to make repeated purchases by offering them special benefits and exclusive rewards. When clients recognise the chance to accumulate fidelity points or receive unique discounts every time they make a purchase, they are motivated to return to your shop to exploit those benefits. Furthermore, these programmes contribute to creating an emotional bond and a sense of belonging between the client and your brand. Members of such programmes often identify with your brand and feel more engaged. Finally, these programmes represent an efficient means of differentiation compared to your competition. When clients notice that you offer a loyalty programme that rewards their commitment, they are more likely to choose your shop over your competition.

 

The importance of feedback

Collecting comments and feedback plays a crucial role in optimising an e-commerce site's customer lifetime value (CLV). Your clients' feedback is a precious resource of information about their purchasing experiences and preferences. This allows you to customise products, services, and business processes to better satisfy their needs while improving their satisfaction. Satisfied clients tend to make repeated purchases and increase the long-term value of a business. Moreover, responding sensitively and promptly to clients' comments and worries demonstrates a genuine interest in their point of view and well-being. This enforces their relationship with the brand, incentivizing them to remain loyal customers and to increase their overall value over time.

There are many instruments provided by Shopify for e-commerce managers who wish to implement feedback collection. Shopify has an integrated functionality that allows clients to leave reviews on the purchased products; moreover, there are several survey and questionnaire apps to collect feedback, such as Typeform. Other options could include the integration of the platform with a live chat (LiveChat) or the use of marketing automation instruments like Klaviyo to send follow-up emails after a purchase.

 

Segmenting customers

Customer segmentation allows for customization and optimisation of marketing strategies. Every client has unique needs and preferences, and segmentation allows us to group clients into categories based on variables like interests, purchase behaviour, and demographics. This personalised approach increases the effectiveness of communications and offers, improving the chance to engage clients and convert sales. Also, it helps concentrate marketing resources on customer segments that offer greater profit potential. In addition, segmentation improves the customer experience. When clients receive messages and offers that reflect their needs and interests, they feel more understood and enhanced. This, in turn, favours brand loyalty and increases the chance for future repeat purchases.

With Shopify, you can directly assign tags or custom labels based on the variables you're most interested in, like, for example, purchase preferences or behaviours. You can also create client groups, segmented according to specific criteria, or use Shopify Flow, an automation tool based on customised rules. Alternatively, you could take advantage of marketing apps and the advanced reporting that Shopify makes available to you. If, on the other hand, you have specific needs, you might consider hiring an IT company to create custom APIs and integrations, as we do at DevInterface.

 

Increasing the Average Order Value (AOV)

Average Order Value (AOV) is the average amount spent by an individual customer each time they make a purchase. Even a modest increase in AOV can have a significant impact on Customer Lifetime Value. Here are some strategies you could apply:

Bundles

Bundles are an excellent way to offer customers a smooth shopping experience and, at the same time, increase AOV. By creating a single page for several products, you simplify the search for complementary products and encourage customers to increase the value of their purchase. This aspect plays an important role for merchants operating in sectors with a long learning curve. Initially, for new customers, areas such as skin care, beauty, health, nutrition, wine, and beer can appear complex. It is often difficult to determine where to start, which products are best suited to one's needs, and how to combine them effectively.

By providing a varied range of bundles suitable for different situations, interests, and conditions, it is possible to directly remove this barrier to change and instill in customers the necessary confidence to make the purchase. Combining this with discounts with respect to the purchase of individual products and offering the possibility of subscribing to packages that customers purchase on a regular basis will further increase the effectiveness of this strategy.

 

Upselling and Cross-selling

Another strategy to increase AOV consists of offering upselling and cross-selling options during the customer journey. Supermarkets are experts in this field; we often put in our shopping cart products that initially were not on our grocery list just because they were strategically positioned next to another article we were already buying. Online merchants who successfully reproduce this phenomenon can benefit from it. A fundamental key to success is to guarantee that every cross-selling suggestion is relevant to what the buyer already has in their cart. Offering, for example, a pair of shorts to a client who is buying a winter coat is unlikely to be successful.

In addition, retailers should consider sending automated e-mails offering customers a discount on products similar to those they are purchasing. For example, if you sell printers, you can send an email to a customer offering a discount on ink in case it is running low. If you sell clothing, you can suggest a discount on gloves that match the coat purchased. These timely and customised suggestions are often very effective.

 

How to monitor Customer Lifetime Value (CLV)

After dedicating effort and resources to improving your Customer Lifetime Value, it is natural to want to evaluate your results. On Shopify, you can easily access key data:

Start by clicking on the 'Customers' section in the administration area.

Here you will find a complete list of your customers, with information on the number of orders placed by each of them and the amount spent.

If you select a specific customer, you will have access to further details regarding their orders and their Average Order Value (AOV).

If you want a more in-depth view, applications such as Lifetimely allow you to connect directly to Shopify, offering additional information such as the average time between purchases, the most popular products, discount codes used and labels that positively or negatively affect CLV, as well as a prediction of future lifetime value for each customer segment. This allows you to make informed decisions based on data about your products, marketing activities and customer acquisition costs.

 

Conclusion

In these uncertain economic times, it is crucial to keep in mind that your customers are facing financial challenges. However, by taking the time to establish an authentic relationship with them and offering a genuine sense of community, you have the opportunity to build an incredibly loyal customer base that can sustain your brand over the long term.

Our team of Shopify experts is available to work with you in developing your Customer Lifetime Value (CLV) strategy. We can work together to implement the previously mentioned functionalities, customising them to the specific needs of your e-commerce shop and customer base. Contact us now.