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Understanding Customer Lifetime Value & How to Maximize it: Part II

Understanding Customer Lifetime Value & How to Maximize it: Part II

Part II: Optimizing eCommerce Revenue

The goals of an eCommerce store owner are simple:
  • Create loyalty
  • Sell more
  • Sell frequently
  • Reduce costs

These are not far off from the results you see when you choose to optimize your CLTV. We've already covered the metrics that go into understanding the CLTV. Now, we will learn more about how optimizing these elements can enhance your growth strategy.

There is a bit of leg work involved in this process as well as a lot of Human intelligence. There’s only so far that a mathematical formula can take you. Here are four simple steps you can start with:

Understand your analytics dashboard

This is the most important step in your journey to increase sales in your store. Whether you are using Google Analytics or any other paid tool, you need to have a baseline of stats to track. Start with conversions, highest selling products, and exit pages to understand what is generating the most revenue and where people are losing interest.

Identify top sellers

Next step should be identifying the top-selling product and categories. Always remember, the harsh reality of the market is the 80-20 rule. But more importantly, look closely at the items that are frequently bought together. Using this information, you can also enrich your frequent purchasers’ list and see if they have made similar purchase decisions as well.

Segment your email lists

First thing you should try to understand is the buying pattern of your customers. Look at high-value and frequent purchasers as these are going to be your key accounts. The segment you email lists accordingly because you are going to reach out to them frequently to give updates on your store and products and keep them interested. Next, look at your abandoned cart list and identify the bargain hunters. These people are on the cusp of becoming long-term buyers as well so send highly targeted emails to them.

Benchmark Metrics

It’s a good idea to benchmark these metrics to the industry standard if you’re first starting out. They may not be completely accurate but they set a good yardstick for your business. Once you have enough data, you can look at your past performance and set targets based on where you want to be.

How improving CLTV affects your sales

Before going further, here is a quick refresher on Customer Lifetime Value or CLTV:


  • AOV is the Average Order Value for the year
  • PF is Purchase Frequency of your clients
  • ALT is the Average Customer Lifetime in years
  • AGM is the Average Gross Margin

Increasing any of these metrics has a direct positive impact on your CLTV calculation. Each of these metrics also represents some vital aspects of your store. Meaning that you can summarize the objective of increasing CLTV as follows:

  • Engaging in Up-selling and Cross-selling
  • Encouraging repeat purchases
  • Developing longer relationships
  • Minimizing the costs of selling

It’s well known that satisfied customers make regular purchases and thus more important to increasing your revenues and profits. Not only that, but these customers can also turn into brand advocates whose social proof will go miles in adding to your brand recognition. And the best part is that nurturing these customers is much easier and less expensive than attracting new customers. Meaning that a store can actively run both campaigns with relative ease.

These customers must be treated very carefully, however, as they can turn unfavourable as well. If they are pushed for purchasing too often, they are very likely to be turned off. With that in mind, let’s dive into how you can improve the shopping experience for your store.

1. Develop Better Personas

Building a good relationship with your customers starts with building a good buyer persona. You need to create an identity that resonates with the audience that you want to sell. Take into consideration their geographic location, interests and shopping habits to form a better view of your ideal customer. This information is going to be crucial for segmentation and influence what your messaging. Also, make use of surveys and other feedback to learn more about them.

2. Foster Loyalty with Benefits

Nurturing customers means going out of your way to offer them something special. At the same time, that does not mean giving away discounts and devaluing your brand. There are different programs that fit different stores and it might even take a couple of experiments for you to finalize a good one for your store. This will require a great deal of analysis and tweaking. Try including badges, tiers, perks, and even gamification to make this program engaging for your customers as well. This is one of those aspects that can have a great ROI in the long-run.

3. Value-driven Selling

Many stores practice up-selling and cross-selling but they are far from implementing it correctly on their store. The challenge isn’t just to show another viable product that the customer can purchase, but show these products at critical points of the checkout process. It’s also important to show the savings a customer will make when they purchase the two items together so that it’s also a value-add for them.

4. Big Purchase Discounts and Offers

Continuing from the last advice for increasing order value, think of various value-adds you can give to incentivize customers to spend more on your store. Think adding in free delivery for orders above a certain value, adding coupons for the next purchase, or discounts for bulk orders. If you’re savvy enough, you can even reach out to customers after they have made their purchases but for that to be a success, you will need to have created segments based on purchase frequency and order value.

5. Explore Payment Processors

Processing fees can be a huge weight on eCommerce operations. What many eCommerce stores don’t realize is that they can reach out to their payment processors to reduce this cost. Even a small percentage drop can help in increasing your revenue. Just like you have to work to attract your customers, so do these processors. Some stores may think that there is going to be some risks involved with switching processors but it’s actually very simple if not just a bit tedious. Anyway, the savings you make from this can be passed on to your customers and directly impact how much or how frequently they purchase.

6. Negotiate Shipping Rates

Just like payment processors, you should negotiate with your shipping partners to understand the best pricing they can offer you. You can also ask them some advice on how to make the shipping process more efficient on your store using practices like batch processing.

Putting the CLTV puzzle together

The journey of maximizing your CLTV is not a short-term project or one-time solution. While the methods mentioned above will help improve profitability, they will need to be worked on and adjusted as your business grows.

In many cases, just focusing on only one aspect of the CLTV formula will lead to more success than giving all the parts equal attention. The crux of all these exercises comes down to having a proper revenue tracking system in place. That is essential to measuring the effectiveness of any tweaks you plan or adjustments you make. Armed with the correct stats and knowledge, you will be able to create the optimal solution for your eCommerce store.

That brings us to the end of our two-parter on the impact of tracking CLTV for eCommerce businesses. We would love to know about some experiments that you did with your store and how did they pan out. We’re always interested in hearing about your experiences so feel free to reach out to us at
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