Did you know that customer acquisition costs 7x more than customer retention? Try it and compare. Try advertising to your existing customers and to new customers and you’ll find that the advertising fees are significantly lower if you advertise to your existing customers. The reason for this is the absence of friction. When a new customer visits your website, this person doesn’t have a relationship with you. He doesn’t know you and he certainly doesn’t trust you. But an existing customer is different. This person has already made a transaction in your website. Aside from being familiar with your website processes, this person already knows and trusts you. So you don’t need to convince them as much as you would a new customer.
This means that customer retention and brand loyalty are more than just buzzwords. They matter. And they matter not just for your brand name but for your pocket as well. According to SumAll, 25% to 40% of the revenues of the stable businesses come from repeat customers. These are the types of customers that sticks with a brand no matter what. So even when times are tough, your business will be able to get by as long as you have some loyal customers.
However, brand loyalty cannot be established over night. It is the same as making a new friend. You cannot approach someone and say that you are best friends tomorrow. You need to build the relationship over time. It is the same with brand loyalty. You need to make your customer experience as pleasurable as possible. This doesn’t only apply to your products and services but also to your employees. This is the reason why businesses spend millions of dollars on employee training. It is how they approach and treat the customers that matters.
Also, there are other strategies that you can apply to your business. In this article, you’ll learn some tactics that can help multiply the customer lifetime value (CLV) of your customers.
What is Customer Lifetime Value?
There are many definitions of customer lifetime value. It also has a lot of acronyms. Some call it as CLV while others call it as LTV. But no matter what you call it, it is computed by the projected net profits that you can make from a customer over time. So it is what they spend in your business over time.
Why do you need to know this? Well, promoting a business is not easy. In fact, it may cost you a lot. Because of this, you need to compute the cost of acquiring a customer versus the customer’s lifetime value. The CLV must be higher or your business is losing money over time.
How to Calculate CLV
According to Marketing Metrics, the chance of converting a new customer into a sale is 20%. But the percentage is higher for an existing customer. It is 60 to 70%. This means that you only need to spend a smaller amount to convert the customer into a sale.
To compute a customer’s lifetime value, you need to look at the timeline. When a customer buys an item. You need to consider all the costs of that item before you deliver it to the customer. From there, you can find out how much you have earned from that customer in a certain period of time. If you have thousands of customers, you may have to do this for each customer and get the sum. That will be your business’ overall customer lifetime value.
Why is Customer Lifetime Value Important?
CLV is a game of numbers. It is more than just how much profit you generated from a customer but how frequent that customer buys from you. For example, a customer that buys a $49 item from you every month has a higher value than someone who buys a $500 item from you once a year. Frequency is key.
So if you have a new business, your goal is to get your first 1,000 customers. From here, you can easily convert them at 60-70% the next time they buy from you.
The idea is like Kevin Kelly’s “1,000 true fans”. This is the reason why looking for fake followers or views doesn’t help. You need true fans to fuel your business. And you can only get that if you focus more on brand loyalty than marketing for new customers.
This should change your perspective completely. Instead of aiming to get 1,000 sales right away. You should aim to build 1,000 followers and subscribers. And the sales will come from there. This is the reason why influencer marketing is so effective. This is because influencers already have a list of loyal followers that you can leverage.
Focus on remarketing to your existing customers. They tend to convert better and you don’t need to spend as much to make a sale.
From here, you are probably wondering how you can do that. Here are some ways to increase your customer lifetime value.
Feature Your Customers
One way to make your customers feel special is to feature them. You can have a spotlight section in your website showing the customers who have happily used your products. This works for more than just increasing your customer lifetime value. It also increases your social proof as other people see other customers in your website.
Provide Excellent Customer Support
Your customers need to know that you will still be there for them after they buy from you. When you do this, it builds trust. They now see your brand as something that truly cares about their needs. One way to do this is to provide excellent customer support. You’ll want to be reachable to your customers. This will diminish the likelihood of getting negative reviews in your business and it will definitely increase your customer lifetime value.
Surprise your Customers
As I have mentioned, building a relationship with a customer is like making a new friend. And there is nothing more touching than surprising your friend. You can do this by sending your customers a little freebie or discount code every time they buy. It may seem little but it can mean a lot to your customers.
Get to Know Your Customers
Try to get more information than your customer’s name and address. Other information such as their birthday and anniversary dates are valuable for your business. You can send them some surprises on these days.
Adjust the Experience to the Customer
In line with getting to know your customers, you should also personalize their shopping experience based on the data that you have gathered. For example, shopping cart abandonment will usually reveal the particular items that the customer is interested in. You should keep this in mind as you approach that particular customer to come back.
The same is true in making item suggestions. Your ecommerce website should be able to tailor suggestions based on the customer’s preferences. You don’t want to send them a random item. You’ll want to send them an item that they have a higher chance of buying.
Celebrate with your Customers
There’s a reason why malls celebrate holidays and it is more than just getting more sales. Celebrations can actually increase your customer’s lifetime value. Here’s the thing. Celebrating with your customers during the holidays means that you want to share the fun with your customers. You can do this by redesigning your site or by giving some extra freebies to your customers.
Think of your Customer’s Needs
The best marketers are those who can think of the needs of their customers and solve them. Here’s the thing. Being a good marketer is more than just knowing how to sell a product. It is about knowing new needs that your customers may have. For example, someone who has bought a certain phone model will need a phone case and a screen protector. If you can show them these products right when they need it, then your chances of converting them is higher. You can also make the deal more irresistible by giving them a discount or bundling the products together. Since it is something that your customers need, the chance of conversion is higher.
Make it Easy to Buy from You
What is the one thing that can lead customers to leave your site? Well, if your checkout system hangs in the middle and they just cannot go to checkout and pay for the products they have added, then they will leave. This is the reason why testing your system is very important if you are setting up an online store. You’ll need to know that the processes are all seamless and your customer will not have a hard time going through it.
PRO TIP: Be sure to always save customer information. This way, your customer doesn’t have to constantly give you their name and delivery information every time they buy. If you can, ask your customer to set up an account in your website. This way, it is easier to get access to their information.
The Quality of your Products Matters
While customer support can help you gain more customers, the quality of your product still matters. This means that you should never forget about improving your products. Quality can be a product’s main characteristic and it can significantly build a brand. Take Apple for example. They are known for high quality gadgets and electronic products. That in itself has allowed them to create a community of fans that buys every product that they release.
Go Another Mile
According to Og Mandino, the author of the Greatest Miracle in the World, there is one secret to attaining a prosperous life. The secret is this: “If someone asks you to walk with him for one mile, walk with him two”. This means that if someone asks for something, you go another mile for them. The same is true for customers. Customers usually have a certain threshold of what they deemed acceptable for products. If you manage to exceed this, they’ll be happy. But if you go out of your way to not only provide quality products but also provide amazing after sales service, then your brand will definitely be remembered for it. This in turn boosts your customer lifetime value.
One of the reasons some customers don’t want to buy clothes online is the lack of fitting. For some customers, clothes are only as good as how well they fit you. If they can’t fit it, then they don’t buy it.
A company called Zalora knows this. So what they did is they allowed customers to buy an item, fit it and return the item if it doesn’t fit. When this happens, they will send the next size free of charge.
Because of this change, the result was amazing. They get more sales and even got the people who are too scared to buy online out of fear of being scammed.
Allowing returns can have many benefits for your business. It may not be easy. But it will definitely make your customers’ lives easier.
Always Keep your Promises
What happens when a friend says that he or she will meet you but he or she hardly comes around? You stop trusting that person. The same can happen if you keep breaking promises with your customer. If you told them that the item will come at a certain time and it didn’t, they will stop believing you. Keeping your promises is an important part of improving your relationship with your customers. So be sure to do it.
Have a Customer Loyalty Program
And if you are lucky enough to have some loyal customers, you should make them feel special by having a loyalty program. For offline businesses, they do this by having loyalty stickers every time a customer buys. For others, they give out coupons when a customer reaches a certain purchase threshold. In any case, you should implement one in your site to reward your most loyal customers.
You may have seen those packages that require an upfront payment and then require a monthly fee later on. These programs are designed to encourage frequency. By spacing out a customer’s payments all throughout the year, you can get more cash inflows. But here’s the thing. You can further encourage this by rewarding the customer. You can do this by giving them something for free if they go for more subscriptions. Remember, frequency equates to customer lifetime value. So the more frequent a buyer purchases from your website, the better. But take note that shopping cart abandoned problems exist and you have to know how to change that. Read our article about shopping cart abandonment.
Boosting customer lifetime value should be one of the priorities of your business. As mentioned, it is significantly more expensive to get a new customer than an existing one. Plus, it is easier to convince an existing customer to buy from you. All the strategies listed here may not work for all types of businesses. So be sure to choose the one that works well with you. Aside from this one you should also consider to start an affiliate program.