Online Marketing Strategy

10 Easy Ways To Increase Customer Lifetime Value

All businesses need customers. Successful businesses need something more - repeat customers. That's where Customer Lifetime Value comes in.

Businesses thrive on repeat business.

That's as true for the McDonald's of this world as it is for street-corner drug dealers.

This won't be news to you if you run a business. Repeat custom will be your bread and butter.

But what's interesting is that lots of businesses focus most of their marketing effort on attracting new customers, often to the point of ignoring existing ones.

You see this all the time with the likes of car insurance companies and broadband providers. The best deals are offered to new customers while existing customers are rewarded with creeping price rises, and what amount to "loyalty penalties".

As a business strategy, taking existing customers for granted while focusing on attracting new customers does work, at least to a point. It cashes in on the fact that customer apathy means that people don't always act in their best interests. When a business offers new customers a better deal than existing ones, existing ones should vote with their feet, but too many will suffer the consequences rather than switch suppliers. This, however, is changing, and will continue to change, with more and more people buying online and discovering that a cheaper alternative, a competitor's best deal, is but a click away.

Now, there is certainly nothing wrong with attracting new customers. It helps expand your customer base and grow your business. It also helps make up for the natural customer loss that occurs over time.

But if you aren't looking after your existing customers, you are missing a bigger opportunity to both grow your business and reduce customer churn.

This is why focusing your marketing efforts on repeat business and increasing the lifetime value of a customer can be a gamechanger for businesses, large and small.

How much is repeat custom worth to your business?

In marketing circles, the value of repeat custom is measured by Customer Lifetime Value or CLV. By working out the CLV, you can find out what an average customer is worth to your business, and more importantly, which customers bring in the most money.

There are a number of ways to calculate CLV, but one simple way uses the following formula:

CLV = (Average Monthly Revenue per Customer x Gross Margin per Customer) ÷ Monthly Churn Rate

Here's an example. You sell widgets and you have 100 customers who spend on average £20 a month buying two widgets from you. The cost of supplying each widget is £5, and you find that each month, 20 customers stop buying widgets from you.

The Customer Lifetime Value for your widget business would be (£20 x 50%) ÷ 20%, or £50.

You can use CLV to help determine your marketing budget. If the CLV of a customer is £50, it makes financial sense spending £10 to attract a new one, or even £49, but not £51 or £100.

You can also work out the customer equity of a business, the total combined CLV of all of its customers. If you have 100 widget customers, the customer equity in your business would be £5,000.

Bear in mind that business is rarely this simple. It's very likely that your business will have different types of customer each with their own CLV.

Ten Easy Ways To Increase Customer Lifetime Value

Increasing Customer Lifetime Value should be at the heart of your online marketing strategy. Going back to our widgets example, you need to be looking for ways to:

  • encourage customers to buy more widgets to increase average order value

  • upsell - where customers are offered the opportunity to purchase a more expensive widget

  • cross-sell - where customers are offered the opportunity to purchase related items (a widget cleaner, for example)

  • increase order frequency by encouraging customers to buy more often (weekly, instead of fortnightly, for example)

  • reduce the churn rate by increasing customer retention and purchasing lifespan

  • Every step you take to increasing Customer Lifetime Value is also a step towards building a better business that will attract new customers who will also want to hang around.

    So here's ten tried and tested suggestions that will increase CLV and benefit your online business.

    1. Discount codes

    Who doesn't love a discount code? If you offer one, don't make customers go looking for it. Make sure it's featured at the top of every page of your website. Same goes for other offers too, like free delivery on orders over a certain amount. Myprotein, for example, does this incredibly well, with the "above the fold" portion of their homepage as good as it gets. make sure your offers are visible on homepage Above: The Myprotein homepage is as good as it gets when it comes to promoting discount codes. It also highlights its free delivery offering and exclusive offers for app users

    2. Free delivery

    One of the few barriers to ordering online is having to pay for delivery. Take that out of the equation by offering your customers free delivery. You can increase order value by offering free delivery on orders over a certain amount. The secret is to make any such offer achievable. Amazon offer free delivery on all qualifying orders over £20 as well as free delivery to Prime members. Time Health offer free first class delivery on all orders, but if you spend £40 or more you get free tracked 24-hour delivery. What's clever is that they flag this at checkout and then encourage you to look at their sale items to make your order up to £40. This is a superb marketing ploy to promote last minute cross-selling. There is little point offering free delivery on orders over £50 if your average order value is £10, but if your average order value is say £35 it can work incredibly well. During peak buying times, like Christmas, a free delivery offer like that will entice more customers to buy more presents from you to get that free delivery, particularly if the delivery date is guaranteed to be before the big day itself. To encourage last-minute purchases, you might offer free next-day delivery. Increase order value with this trick Above: Time Health encourage customers to "see our sale items!" while at checkout to boost order value and qualify for tracked delivery

    3. Newsletters

    When customers sign up to receive your newsletter, they are giving you the opportunity to reach out to them and keep them informed. Don't abuse this by spamming their inbox with ever more desperate pleas for business. Instead, ensure your newsletter offers real value. And only send emails to subscribers when you genuinely have something worth saying. Whole Foods Online send weekly emails to subscribers offering a free product, such as a 1kg bag of organic cashews, when you spend £50 or more. everybody loves a freebie! Above: Whole Foods Online use their weekly newsletter to drive increased order value with offer of free products

    4. Signups

    A great way to get more signups is to incentivise people to take action. Promise those who download your app exclusive offers and then deliver on that promise. The same goes for newsletters. People ready to buy are often looking for a discount so give them what they want by offering an immediate discount on their first order by signing up to your newsletter. They may use that discount immediately, but even if they don't, you still have the opportunity to engage with them via your newsletter. ASOS use this to target students, offering 10% off all orders for signing up. Incidentally, they use a clever pop-up that doesn't say "10% off for students!" (who doesn't offer that?), but asks, "Are you a student?". Students will mentally answer yes, and will then be more likely to subscribe. All good salespeople know to get that first soft confirmation :) Increase CLV with offers Above: ASOS seek to attract new custom and increase CLV by targeting its key student market

    5. Pre-empt the next order

    Businesses that mail out products with nothing more than an invoice in the box are missing out big time. This is the perfect opportunity to cross-sell by including a flyer or catalogue, and to secure repeat business by offering a discount coupon against a future order. This is particularly valuable to businesses that sell through a third-party vendor such as eBay or Amazon. The goal here is to increase CLV by getting that customer to become your customer who will order directly from you in the future.

    6. Loyalty programme

    Here's another way to increase Customer Lifetime Value: reward your most loyal customers by offering a loyalty programme. Your local coffee shop probably does this with a free cup of coffee for every five you buy. Lots of online retailers offer points per pound spent, with those points translating into money off future purchases. This gives customers another reason to return and shop with you. Village Hotels have a fantastic loyalty program that's free to join and offers everyone signing up to their Booking Revolution free wifi, parking, gym, pool and coworking space when you book a room. It turns every customer into a VIP. make every customer feel like a VIP Above: Village Hotels make every customer feel like a VIP with their Booking Revolution offering

    7. Upgrade

    What Village Hotels offer feels like an upgrade. They could have just announced that all rooms now come with free wi-fi, gym access and so on, but by simply asking customers to sign up to their loyalty program, it feels like an upgrade. Plus they capture valuable customer information before they have even booked. You don't need to own a hotel chain to give your best customers an upgrade. Introducing a new line? Send it free to your biggest-spending customers. Offer a premium version of a service? Give your best clients an upgrade to it to thank them for their custom.

    8. Reviews and testimonials

    Positive reviews and testimonials benefit your business in two ways. The first is social proof: people are more likely to buy something that others recommend, even if the recommendation doesn't come from someone they know. Secondly, anyone who leaves you a positive review or testimonial is more likely to buy from you again. So make it very easy for customers to contact you and give you feedback. Even poor feedback can be beneficial because it allows you to make good your relationship with your customer. In fact, some of your best customers will be those who came to you with a problem that you gladly solved for them.

    9. Exceed Customer Expectations

    Exceed customer expectations. Three words that should be the guiding principle of every business. Extraordinary customer service will always pay dividends in terms of CLV. If you are willing to go the extra mile for customers, they will reward you with their loyalty. This can be anything from a hassle-free return policy to handwritten thank you notes to Christmas hampers for your best customers to first-class 24/7 support. We use Namecheap for website hosting because of their exceptional round-the-clock support. Cheap hosting can become very expensive when there is a problem and nobody is available to help you fix it.

    10. Surprise!

    When sending out an order, also think about putting a freebie in the box to surprise your customer. It doesn't need to be anything big: a sample product, short-date product, end-of-line item, anything that will put a smile on your customer's face. For example, Feel Good Contacts includes a small pack of sweets with every order for contact lenses!

    What's interesting is that you don't need to break the bank to increase your Customer Lifetime Value. Most of the above can be implemented at little or no cost, but the difference to your bottom line can be staggering.

    So, what are you going to do today to increase your CLV? A chat with Brandwise might be a good starting point. We can help you develop an online marketing strategy that will help you increase Customer Lifetime Value. If you'd like to discuss your particular requirements over a coffee (virtual or otherwise), get in touch today.

    Brandwise is an online marketing agency that offers a range of services including web design, SEO and web content. We serve small and medium size businesses in Edinburgh, the Scottish Borders, and throughout the UK.

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