Understanding Your Customer Lifetime Value

What’s your average customer lifetime value (CLV)?

It’s the first question we ask all of our clients when we start working together.

Why?

Because it’s a critical metric that forms the base for your whole e-commerce ad strategy.

CLV measures the total revenue generated from one customer. From the first sale to the last. 

It recognises that a customer that makes multiple small purchases may actually be worth more than someone who makes a big one off purchase.

CLV = Lifetime revenue from customer – cost of acquiring customer – cost of sales

For example…

Quest Bars are going all in on Sponsored Brand ads on Amazon.

They are likely bidding well about the odds to ensure they maintain the top spot for search terms such as: protein bars, nutrition bars etc.

And in some cases they are likely losing money. Yet they don’t care. Why?

Because Quest Bars aren’t trying to profit from that first transaction.

Their aim through these aggressive ad strategies are to build brand awareness and ACQUIRE NEW CUSTOMERS.

Once they’ve acquired these customers they then profit on the backend, through the 2nd, 3rd, 4th, 5th sale etc.

It’s here where the REAL MONEY is generated.

We’re working alongside a beauty brand and they are executing the exact same strategy.

They are targeting their ideal customers through Facebook and Instagram ads. Then offering a compelling coupon code for one of their high margin products.

Their short term goal? To acquire as many new customers as possible whilst breaking even on ad spend.

Their long term goal? Repeat orders from existing customers for the same make up product, whilst also cross selling other beauty products from their range.

This is the strategy every e-com business should be executing right now.

Yet, the mistake most Amazon sellers make is that they are focused on maximising profits from the first transaction.

Now this is fine if you’ve got a high margin product.

Yet, if you’ve only got one £12 product then I hate to be the bearer of bad news, but most of your profit is going to get eaten up in ad costs.

To increase your ROAS (return on ad spend) you’ve got to horizontally scale by launching new products that your existing customer base would be interested in.

This way you can increase their LTV, afford to spend more on advertising and increase your profit margins.

To achieve this you need to know how to build out compelling ad campaigns (on and off Amazon), acquire customer data (emails, pixel them, chatbots etc) and then nurture them through a funnel.

This takes time, expertise and a large dose of creativity.

Fortunately for you, we’ve been there, done it and got the CLV t-shirt.

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