Customer Lifetime Value
Commonly referred to simply as CLV, Customer Lifetime Value is a very valuable number to know - and just as difficult to calculate.
Wouldn't it be great if you knew exactly how much a customer would be worth to you the first time you met them? That's the question that the Customer Lifetime Value metric will try to answer. In other words: How valuable is the customer over their "lifetime in your business".
After all, customers stop buying from you at some point. Either they move, their needs change or they choose another business to shop at. But often X% of your customers will return and shop with you again. It's this number, X, that we want to know. Firstly, we want to know how many times they end up shopping with you and how big an average order they place. In other words, "what do I earn from this customer over the entire period?"
If you know that number, it's much easier for you to work with your marketing. If you know that people will spend $3800 in your store over the next 3 years, you'll probably be more inclined to pay $100 to get them in the store the first time. But if you think they'll only spend $350 on their first purchase, then paying $100 in advertising for the first purchase might hurt a little.
How do you calculate CLV?
There are a myriad of models for calculating CLV. Some say, for example, that if a customer has "been away" from your business for 2 years, they should be counted as a new customer. But you wouldn't say that in the automotive industry, for example, where it's quite normal to have a car for 5 years before you return to your car dealer and need a new one. If you run a supermarket, on the other hand, your customer must return within 2 years. So you need to look for a model that fits your business when calculating CLV for your customers.
When you have an online store, it's easier to calculate than when you have a physical store. Here you have something to identify your customers (their address, name and email address). In Shoporama, we have built in a feature that tracks how often your customers shop again in your online store based on their email address. You can find this number at the top of your dashboard. Here you can see what percentage of your customers in the last 6 months have made previous purchases in your online store.
We know online marketing in Shoporama
We've been working with online marketing ourselves for decades. As the only shop system in the country, we have spoken multiple times at conferences such as Marketingcamp, SEOday, Shopcamp, Digital Marketing, E-commerce Manager, Ecommerce Day, Web Analytics Wednesday and many more.