When you have an eCommerce store, for example, on Shopify, there is a large number of metrics to keep track of. There is, however, one metric that is sometimes overlooked but is a truly important factor. We’re talking about Lifetime Value or LTV.
LTV can help you determine how valuable your customers are, which in turn helps you maximise conversions.
In this article, we’ll explain exactly what LTV is, why it’s so important, and how you can calculate it.
We’ll also give you 5 steps to boost your LTV and store revenue with Klaviyo. When you use Klaviyo, LTV is easy.
What is LTV in eCommerce?
LTV (Lifetime Value), also called CLTV (Customer Lifetime Value) or LCV (Lifetime Customer Value), is an important metric within eCommerce.
LTV can be defined as the monetary value of a relationship with a customer when considering projected future purchases of that customer.
Simply put, lifetime value is the estimated revenue expected to be generated by a specific customer or customer segment over a set amount of time.
How is LTV calculated?
LTV is calculated by multiplying the average order value of one customer’s transactions with the customer’s purchase frequency, and the estimated customer lifespan. The calculation looks like this:
Average Order Value x Purchase Frequency x Customer Lifespan = LTV
Let’s look at an example where your average order value is £100, and a customer completes a purchase from your Shopify store 5 times a year for 3 years. The customer’s lifetime value would then be £1500, according to the following calculation:
£100 x 5 x 3 = £1500 lifetime value or £500 per year
So, to calculate the LTV for a customer segment, you will need to find these three customer data functions within a specific timeframe: average order value, purchase frequency, and customer lifespan.
Why is LTV important?
LTV is an incredibly important metric to marketers because it contributes to the long-term revenue of a business. Here are a few reasons why LTV is so useful:
- LTV attaches value to customers and displays them as assets which helps eCommerce businesses to assess the financial value of each of their customers.
- LTV shows a highest limit on how much money should be spent on keeping a customer from leaving, or on acquiring a new customer.
- LTV encourages online stores to not just focus on revenue, but also on the importance of keeping their relationships with their customers healthy and long-term.
Yes, LTV can give you an idea of which customer segments give you most revenue, which can steer your marketing choices and help you maximise conversions.
It’s therefore well worth the effort to find ways to boost your LTV, for example, by using Klaviyo.
What’s a good LTV?
A good LTV for an eCommerce store should be at least three times higher than your customer acquisition costs (CAC), meaning how much money you spend on getting new customers.
If your LTV is lower than that, it means that you need to work on boosting your LTV.
Using the LTV/CAC ratio will help you compare the value of a shopper over their lifetime to the cost you spend on acquiring them. As an example, if you spend £100 on marketing to acquire a new customer, your customer’s lifetime value should be at least £300 for it to have been “worth it”.
How to boost your LTV with Klaviyo
If you’ve realised that your LTV can be improved, Klaviyo is a great tool to boost your lifetime value. Here are 5 ways you can improve your eCommerce LTV with Klaviyo.
1. Loyalty programs
The first thing you can do is to create a Klaviyo loyalty program, and thereby retain customers and increase revenue. You might wonder if it's really a good idea to offer a discount to customers through a loyalty program, but it is money well spent.
Having customers return repeatedly is a straightforward way to cut down on your marketing costs and increase the lifetime value of customers. That means, CAC goes down and LTV goes up!
- Gift cards
Other benefits that VIP customers can receive are having exclusive access to certain products or early access to new products.
2. Offers: Upselling and cross-selling
Based on what customers have bought in the past, Klaviyo can help you upsell and cross-sell products. This naturally increases your average order value, which boosts your LTV.
Upselling means recommending an upgraded version of what your customer wants to buy, whereas cross-selling is about recommending a product which complements the product.
Klaviyo can help you create automated email campaigns for all kinds of upselling scenarios. Imagine, for example, that somebody bought a package of cat litter from you, which will run out in a month. In just under a month, Klaviyo can remind the customer of an auto-refill option which ensures their feline friend always has what they need.
3. Great customer care
Offering great customer service is another crucial factor which helps you acquire new customers and retain old ones. Bad customer service is the reason 60% of internet users hesitate to buy something online.
If possible, offer 24/7 live chat support, or if that isn’t an option for you, simply reply as quickly as you can.
Another tip is to make sure that your business is active on several social media channels. 66% of shoppers use at least three different channels of communication to contact customer support. Then, find out which channel your clients prefer the most, and use your resources accordingly.
With the Shopify app Shopify Inbox, you can provide omnichannel support for your customers. It allows you to communicate with shoppers through the online store chat, email, social media, or popular message platforms such as Facebook Messenger.
4. Klaviyo email marketing
The email marketing Klaviyo provides also allows you to improve customer relationships and increase engagement. Some of the best Klaviyo email flows are:
- A beautiful newsletter which lets customers know about upcoming sales, exclusive deals and product restocks
- A thank you email after a customer has completed a purchase
- Personalised abandoned cart emails to remind visitors of products they added to their cart, but never purchased
- Customer win-back emails (a re-engagement campaign) after a period of inactivity, for example, by offering a discount code or sharing a new product through customer winback Klaviyo emails
Emails can improve LTV as they provide support to the customer and encourage repeat purchases, and a lot of it can be automated to make things even easier for you as an eCommerce vendor.
5. Data-driven marketing
Klaviyo is all about providing data-driven marketing tools for your eCommerce business. Why is data driven marketing so important?
Data-driven marketing is based on an analysis of your customers’ preferences and broader trends, and helps you improve the conversion rate.
The result is marketing strategies that can create a better and more personalised customer experience. It also helps marketers make better decisions and know where to spend their advertising budget.
Using a tool like Klaviyo with data-driven marketing means your decisions aren’t just based on gut instincts, but facts.
Key takeaway: How to boost your store revenue with Klaviyo
You can boost your store revenue by letting LTV steer your marketing choices and thereby also improving your LTV.
One way to increase LTV is by using loyalty programs which help you retain customers and increase revenue. Upselling and cross-selling can also help you increase your customers’ average order value. Great customer care and email marketing will make sure your customers feel taken care of and are encouraged to come back again.
Klaviyo’s data-driven marketing is the key to creating a personalised customer experience based on real data and increases your Shopify store’s LTV.