With the odds of converting an existing customer hovering between 60% and 70% and existing customers forking out 67% more cash than new customers, the verdict is in: Extending the lifespan of your customer relationships can pay huge dividends.
The great news is, when you optimize your logistics to match customer expectations, longer Customer Lifetime Value (CLV) will soon follow. Then, you can look forward to more revenue, profits, and sustainable growth.
As competition in the eCommerce market grows tougher by the day, you’re probably curious what CLV is and whether it can help you achieve your eCommerce goals. The answer to the latter question is a resounding “yes.”
To bring you up to speed, in this post, we’ll cover what CLV is and why it’s so crucial to your eCommerce brand’s long-term success. Afterwards, we’ll share some insider tips, tricks, and tools to take your logistics and CLV from “good” to “great.”
Table of contents
- What is Customer Lifetime Value (CLV)?
- How to calculate your CLV
- Why CLV is vital to long-term success
- How to build a CLV-boosting logistics strategy for your eCommerce business
- Wrapping up — The best way to level up your logistics for enviable CLV
What is Customer Lifetime Value (CLV)?
CLV is a key performance indicator that highlights how much cash customers are likely to spend on your business over the lifetime of their relationship with you. Tracking your eCommerce store’s CLV over time unlocks a data goldmine that can help you:
- Predict customer buying patterns to guide your business strategy
- Calculate how much capital to invest in customer acquisition
- Pinpoint and rectify issues to reduce churn rates
- Identify your dream customers
- Boost customer loyalty
- Increase profits and cash availability
How to calculate your CLV
Working out your eCommerce business’s CLV boils down to a simple formula:
CLV = Average purchase value x average number of purchases x average customer relationship lifespan in years
Here’s an example of the CLV formula in action:
- Average purchase value: $100
- Average number of purchases: 12
- Average customer relationship lifespan: 8 years
- CLV: $100 x 12 units x 8 years = $9,600
More concretely, let’s imagine you own a coffee subscription brand. A customer starts by spending $70 a month for personal consumption. After a few years, the customer begins to purchase coffee for their corporate office in addition to their personal order, spending an extra $2,000 per month.
Over the customer’s 10-year lifespan with your store, you could make an additional $240,000 from their corporate account alone, skyrocketing your CLV, revenue, and profits.
Tip: Keep in mind no two stores’ CLVs will look the same since they’ll differ based on the eCommerce model used. For example, you could adjust the formula to include metrics like churn rate for subscription-based stores. So, research CLV for your specific eCommerce strategy and tweak your calculations to match.
Why CLV is vital to long-term success
Cash-focused metrics like revenue, profit margins, and return on investment have clear importance in your eCommerce journey. But when it comes to tracking CLV, its value to your eCommerce business is less obvious.
While CLV is often overshadowed by our favourite money-centered metrics, it’s equally powerful in transforming your business into a lean, mean, scaling machine. Let’s explore some ways CLV can help you win big.
1) Secure repeat buyers to supercharge growth
Your CLV is the by-product of two key business areas:
- Buyer experience
- Customer loyalty
Your buyer’s experience is connected to your customer loyalty, which is tied to your CLV.
To put this concept into perspective, think of the last time you experienced the dreaded “out of stock” notification on a website or “item unavailable” email after completing a purchase.
Sure, mistakes happen, but that likely didn’t stop you from looking elsewhere for the products you were missing (not to mention the sour taste the experience left you thanks to the wasted time and effort).
Your customers share the same sentiments. Each time you disappoint shoppers, your buyer’s experience and customer loyalty take a hit, pushing shoppers into your competitors’ open arms.
The result? A shortened CLV with a negative domino effect on your eCommerce business’s growth stats.
Conversely, customers feel valued when you fulfill your customer service promises, making them more likely to purchase again and allowing you to scale faster. In fact, 93% of shoppers said they would buy again from brands with excellent customer service.
2) Get (and stay) ahead of your competitors
Whether it’s optimizing your marketing strategies or going cross-border, there’s always a project you could invest in to grow your business.
Some of your competitors believe their resources would be better spent on tasks that have a direct impact on their bottom line instead of areas like CLV. This difference in beliefs leaves the door wide open for you to gain a strong competitive advantage.
You can win over shoppers with small, but effective strategic adjustments that power your eCommerce brand miles ahead of its misguided peers.
For instance, you could:
- Create a hassle-free returns process
- Introduce a customer loyalty program
- Send personalized product recommendations
- Provide timely product refill reminders to customers
- Distribute stock nationwide to facilitate same-day shipping
- Build a solid post-purchase experience
Don’t let your competitors gain the upper hand. Discover how AMZ Prep helps eCommerce brands scale.
3) Experiment to maintain growth
With a longer CLV, your eCommerce business gains a luxury denied to many — time. Your business can afford to adopt a more long-term view and paced approach to scaling instead of focusing on aggressive short-term wins.
Also, since you’ll have more time to recoup your investment, you’ll gain the freedom to experiment with more expensive growth strategies previously out of reach with a lower CLV. This will help you build solid foundations in marketing and sales.
4) Capitalize on existing customer relationships
You’ve put blood, sweat, and tears into building a successful eCommerce business – now it’s time to score an even bigger reward. This is where your efforts in developing your CLV can shine through.
Acquisition is becoming more expensive, so a higher CLV will earn you a greater return for your investment. Prioritizing your CLV not only helps you build a customer-centric store that pulls in new shoppers and drives sales, but also allows you to squeeze more cash out of your existing relationships without incurring huge acquisition costs.
It costs five times more to acquire a new customer than to retain an existing one, you’re more likely to successfully sell to existing customers, and increasing retention by just 5% can boost profits up to 95% in some cases. That means retention is one of your best drivers for bottom line success.
How to build a CLV-boosting logistics strategy for your eCommerce business
You now know how CLV can make or break your eCommerce store’s long-term success. However, you may be wondering how you can optimize your supply chain logistics to boost your CLV. We’ve got you covered — below are some steps you should take to jumpstart your processes.
1) Stay in stock
Whether you have thousands of SKUs or a handful of top sellers, there’s one critical rule you need to follow to flourish on Amazon: never run out of stock.
Stockouts will not only land your business in Amazon’s bad books, they’ll also detract from your customer experience, which lowers your CLV over time.
So, implement a multifaceted inventory replenishment strategy to ensure stockouts never become a reality. Here are some actions to tick off:
- Add emergency stock to your inventory order (enough to cover restocking time and possible delays)
- Store partially made goods with manufacturers to speed up production
- Fly in a portion of your inventory
- Distribute your stock across your selling territory
- Set up accounts with local suppliers
- Utilize inventory forecasts during high-demand seasons
2) Create a customer-centric product fulfillment strategy
Who doesn’t love receiving a package in the mail? There’s just something exciting about opening a product that can be addictive to shoppers.
Your product’s journey from your warehouse to customers is crucial, because customers often decide to stay or go depending on how you treat them after they hit “buy.” To illustrate this, 80% of shoppers have cut ties with a brand they’ve been loyal to after three or fewer negative customer experiences. Yikes.
That’s why it’s vital to construct a fulfillment strategy that places your customers wants and needs at the forefront. Here are some ways to make it happen.
Keep customers informed
From sharing tracking IDs promptly to providing email updates, there are countless ways you can keep your customers in the loop. Taking customers along for the ride will not only help reduce buyer’s remorse, but also build anticipation and excitement into the customer journey, even if there are unexpected hiccups.
For example, if you experience delays with your shipping carrier, use it as an opportunity to impress your customer with an apology, explanation, and gift such as a discount code.
Consider doing the following to keep customers informed:
- Send a confirmation email or SMS after purchase to let customers know you received their order.
- Have a section in your customer portal where buyers can check on the tracking status of their goods.
- Text customers when their item has been shipped, and how many days you estimate to delivery.
- Send customers an email confirmation once the package has been scanned as delivered, so customers know to check it and write if there are any problems.
Protect your products
You don’t get a second chance to make a good first impression. So, make each opportunity count by ensuring every product and its packaging arrive in excellent condition.
Some ways to fashion an unboxing experience that paints your brand in the best light include:
- Invest in attractive and durable product packaging – Your product packaging should be appealing as well as able to withstand long-distance travel while not tied down in courier vans and postal sacks. Research the best outer carton thickness and dunnage for your product type to prevent product damage when shipping bulk orders. Remember to use Amazon-compliant pallets and ensure products are loaded to spec to avoid repacking, which can provide more chances for damage.
- Use Amazon FBA’s drop test to certify product packaging quality – To pass Amazon’s drop test, your box packaging should be able to survive a three-foot drop on each side and one corner.
- Partner with a reliable 3PL to leverage economies of scale — When you work with a 3PL that’s experienced in packaging and dunnage, you can utilize their expertise on how to best protect your products. These outsourced partners would have packed and learned from multiple other merchants to find out what works best. Moreover, you usually get a deal on packaging materials since 3PLs can leverage economies of scale when purchasing high-quality supplies.
Gather reviews and feedback on your fulfillment and unboxing experiences
Leverage customer feedback to optimize your shipping models and packaging design for more conversions. A/B test designs and materials to find your perfect mix as well.
With that said…
3) Sync your supply chain from end to end
A supply chain that operates like a well-oiled machine paves the way for happy customers, more sales, and an extended CLV.
To achieve smooth operations, implement a supply chain management system with a centralized location for you to analyze your business’s performance, spot opportunities, and extinguish threats. For best results, look for a solution that monitors:
- Inventory levels
- Supplier communication
- Purchase orders
- SKU-level performance
- Shipment locations
- Freight forwarders
Extra brownie points if your supply chain management solution allows you to set up alerts for things like:
- Low stock levels
- Damaged shipments
- Delayed freight
- Competitor price changes
- High customer complaints
- Low product ratings
4) Match marketing velocity to inventory availability
Another method to ensure your logistics strategy feeds your CLV is to monitor your stock levels and adjust your marketing accordingly. This approach will help you maintain sales volume while controlling inventory to avoid stockouts.
For example, if you know you have low inventory for your top-performing products and restock units won’t reach your shelves for another month, it’s a good idea to take your foot off the gas pedal in your marketing efforts and adjust pricing to slow sales temporarily.
As replenishing stock hits your warehouse, you can gradually ramp up to previous levels, and customers will remain unaware of your stock level dip.
Wrapping up — The best way to level up your logistics for enviable CLV
Whether you’re in the start-up phase or run a seasoned eCommerce store, the right strategy, tools, and mindset can bring longer CLVs within your reach. Extended CLVs are byproducts of dedication to your customers and continuous refinement of your supply chain processes.
So, stay tuned into your customers wants and needs, and look for ways to exceed their expectations through your store’s logistical setup. If needed, call in reinforcements from prep facilities and let technology do the heavy lifting to improve your results without increasing your workload.
The clock is ticking, so take action now to get ahead of your competition. Follow the steps outlined above to take small, daily strides that’ll improve your logistics. Before you know it, you’ll be pulling in brag-worthy sales from customers new and old while maintaining optimal inventory levels, which will ultimately supercharge your CLV.
Kickstarting your CLV optimization journey? Don’t go it alone. Get help from MyFBAPrep.
Rachel Go is the marketing director of MyFBAPrep, an international network of eCommerce 3PLs and prep warehouses with 50+ locations, 20M+ square feet of operating space, and the ability to reach any US customer in 1 to 2 days. MyFBAPrep handles item-level FBA prep and eCommerce fulfillment (pick/pack/ship) including Amazon FBM and Seller Fulfilled Prime. They also handle other marketplace fulfillment such as Walmart for enterprise merchants, at-scale forwarding and storage for Amazon aggregators, and B2B retail replenishment services including EDI.
MyFBAPrep provides access to strategic warehouse locations and a wide variety of eCommerce services with a single partnership, along with white glove customer service and best-in-class technology. Sellers can send items into a single MyFBAPrep location and let us handle shipment splitting, prepping, packaging, and shipping across their sales channels. We integrate with most major warehouse WMS platforms and client Order Management Systems offering real time inventory levels, order tracking and dashboard analytics across our network.