15 Tips To Boost Both Your Customer Lifetime Value and Average Order Value
Editor’s Note: This article is a contribution from Steve Chou, a well-respected ecommerce influencer who runs the popular MyWifeQuitHerJob.com blog and podcast.
Most online store owners spend the majority of their marketing budget trying to attract new business when they should be selling more to their existing customers.
After all, repeat business provides a foundation for your ecommerce store and allows your revenue to be predictable and consistent.
In addition, selling more to your existing customers is significantly cheaper than acquiring new customers, as well.
According to Forbes, acquiring new sales can be up to five times more expensive than nurturing existing customers.
Bain and Company states that a five percent increase in customer retention can increase business’ profitability by up to 75 percent.
But statistics aside, the real question is whether these rules apply to the small business world.
Bottom line, if you focus on building a strong relationship with your existing customer base, you can grow your business cheaper and faster than acquiring new customers.
Case study: Real customer LTV stats from my shop
Before you can improve your customer lifetime value, you first need to know your baseline numbers.
With my online store, I sell handkerchiefs and linens that primarily cater to the wedding industry.
Because most wedding customers are one and done (despite the high divorce rate in the US), you would think that repeat business would be a small factor for our store.
But the numbers don’t lie. Even though our repeat customer rate is only 12 percent, these customers make up over 36 percent of our revenue.
Every ecommerce business (no matter what you sell) has a component of repeat business that can be amplified.
Now as a small business owner with limited resources, you can’t go after everyone for repeat sales. Instead, you must focus your marketing efforts on customers who make you the most money.
Here’s an analysis I recently performed with my store to help focus my efforts.
First, I created separate customer segments based on purchase value.
Then, I used this data to group customer segments based on average order value (i.e., the average amount a customer spends for each order).
Our average order value is about $60. As a result, I lumped my customers into buckets for orders that were:
- Less than half my AOV (bought less than $30)
- More than half my AOV (bought between $30 – $60)
- Above my AOV (bought between $60 – $120)
- Double my AOV (bought more than $120)
Here’s what I found.
Only 10 percent of my customers spend more than $120 (two times my AOV) when placing an order, while nearly half of my customers (45.83 percent) spend less than $30 (half my AOV).
But here’s the kicker.
If you reframe the data and look at my store’s revenue distribution, you’ll see that the few customers who spend more than $120 make up almost half of my overall sales.
Even though only 10 percent of my customers spend more than $120, these big fish customers make me the most money.
Have you ever heard of the 80/20 rule? In ecommerce, approximately 80 percent of your sales will come from 20 percent of your customers.
If you look at the yearly sales for our online store, the data shows that:
- Our top 20 percent of customers (those who spend over $120 per order) yield 67 percent of our total sales (67 percent is close enough to 80 percent).
- Repeat customers bring in 36 percent of our revenue.
The top 20 percent is where you should be focusing your efforts.
How to boost customer LTV with your online store
As mentioned earlier, repeat business generates over 36 percent of our revenue.
This means that without any extra work, we can rely on our repeat customer base to bring in 30-40 percent of our sales every year. In fact, our email list allowed us to weather the storm during the pandemic because we could count on sales from our loyal customers.
As a result, repeat sales is a key metric that we focus on for our ecommerce business.
Here are 10 ways to increase your customer lifetime value and generate more sales from your existing client base.
1. Segment out your best customers
Marketing automation providers like Klaviyo allow you to easily analyze your customer data.
For example, you can filter out your best customers based on how many times they’ve made a purchase. And within seconds, you can even create a segment of repeat customers.
Here are some criteria that you can use to identify your best customers:
- Customers who purchased two times more than the average order value
- Customers who purchased more than once
- Customers who made the most purchases over all time
Within Klaviyo, this is very easy to do. In the example below, I created a high-roller segment of all customers with a predicted LTV greater than $200.
Klaviyo also has a special tab that will tell you who your all-time best customers are.
After analyzing the data for my shop, I discovered that our best customers were event planners, hotels, and caterers.
Once you’ve identified your best customers, you can reach out and offer them promotions, discounts, and special benefits.
Your best customers already see the value of your products. Making them feel special will reinforce their brand loyalty.
2. Email Your Customers
Sending out email campaigns is a useful way to boost customer retention.
On average, 30 percent of our revenue comes from email marketing.
In fact, here’s a screenshot for a month where email is coming in at around 27 percent.
A good percentage of my email revenue is derived from automated email campaigns that run on autopilot.
- Pre-purchase flow: This sequence warms up customers and encourages them to buy.
- Abandoned cart flow This sequence recovers lost sales from customers who have abandoned the site.
- Post-purchase flow: This sequence is used to cross-sell products to existing customers and gather reviews.
- Win back flow: This sequence entices people to purchase after a long hiatus.
But the majority of my email revenue comes from sending direct campaigns and this is where most store owners do not send enough.
Do not be bashful about sending emails to your most active customer segments. The customers that regularly open your emails will not get angry with you for sending them emails, though keep an eye on your open, click, and unsubscribe rates.
Every time we run a targeted sales promotion to our most active email subscribers, we send out up to six emails.
- Email #1: We announce the sale and the deadline
- Email #2: We resend email #1 to non-opens
- Email #3: We remind customers that the sale ends soon
- Email #4: We resend email #3 to non-opens
- Email #5: We remind customers that the sale ends today
- Email #6: We extend the sale an additional day
Don’t be afraid to up the frequency of your email marketing campaigns as long your open, click, and unsubscribe rates remain steady. Customers won’t mind getting an email from you as long as your emails are useful to them.
3. Personally reach out to your biggest customers
Sometimes you’ll discover a customer who makes an unusually large purchase that’s worth 25 to 50 times your average order value. For these customers, I like to establish a tighter relationship that goes beyond email and digital correspondence to make sure that they buy again.
The best part is that your biggest customers are not cold contacts and they likely want to hear from you. After all, they already know and love your brand. What’s more, they are already satisfied with your products and probably need to buy more in the future.
You’re likely already communicating with your top customers via email (here’s where a VIP segment comes in handy), but you can also consider reaching out to your top customers by phone or snail mail. If they are local, then offer to meet up in person if you have the capacity to do so.
The effort is worth my time, so when I reach out to my top customers, I offer them exclusive benefits such as:
- Special discounts and freebies
- A dedicated sales rep for future orders
- Guaranteed on-time delivery
- Concierge service for special order considerations
Here’s pretty much exactly what I say.
“My name is Steve from Bumblebee Linens. First off, we want to thank you for your business. As one of our best customers, we want to offer you a special discount and a dedicated representative to handle your future orders. Just let us know what you need and we will make sure your order reaches its destination on time.”
At the end of the day, it’s a win-win for my business and my top customers. Our customers get to enjoy discounts and special treatment and we get a customer for life.
This method of correspondence may not be the most scalable for every entrepreneur, but I’ve found that having a face-to-face conversation, when feasible, always boosts customer loyalty.
4. Increase your average order value (AOV)
Related to LTV, average order value (AOV) is the average amount a customer spends every time they make a purchase. If you increase your AOV, you can increase your revenue without additional marketing efforts.
To compute your AOV, divide your total revenue by the number of orders. Make sure to remove shipping fees, taxes, or unusually large orders from the computation.
Once you know your AOV, here are five tips on how to increase it.
Bundle your products together
The easiest way to increase your average order value without much effort is to simply bundle your products together in a multi-pack.
In fact, we use this strategy heavily in our ecommerce store because our products are too inexpensive when sold separately.
For example, the cost of a single handkerchief in our store is $6. But it’s extremely difficult to make advertising profitable if a customer buys only one hankie. The AOV is too low.
As a result, we bundle all of our hankies into packs of three or six which gets customers to buy more. This significantly increases our average order value and our profit by as much as two to eight times per multi-pack.
Set a higher free shipping threshold
Increasing your free shipping threshold by 15-20 percent is another easy way to increase your AOV. This strategy incentivizes larger orders because no one likes to pay for shipping.
Ideally, you should set your free shipping threshold to your current AOV plus the price of an additional item to entice a customer to add just one more product to their cart.
One thing to bear in mind: a higher free shipping threshold does not guarantee a positive impact on your conversions. If your customers are price-sensitive, a higher free shipping threshold may decrease conversions.
Encourage your customers to buy additional products
If you order a burger at a McDonald’s, chances are your cashier will ask, “Do you want fries with that?” And the answer is usually yes because most people want fries with their meal.
The same principle applies to your ecommerce business. For example, if you look at a typical Amazon listing, what do you see?
- Customers who bought this item also bought
- Special offers and product promotions
- Frequently bought together
Getting your customer to add to cart or make a purchase is more than half the battle. And while they are hot, you have to steer your customers toward products that they might have missed.
There are four primary ways to entice your customer to buy additional products:
- Show a popup of related products after an add to cart
- Display a special offer immediately after checkout
- Cross-sell complementary products through email after the purchase
- Cross-sell complementary products via advertisements
As you explore the different methods below, be mindful of not bombarding your customers with too many upsell or cross-sell messages. Gather data about which methods work the best and don’t overdo it.
Offer an upsell after add to cart
Displaying related products to your customer immediately after an add to cart can dramatically increase your average order value.
And according to Sumo.com, upselling increases revenue by 10-30 percent on average.
Mark Arruda of ConstantlyVariedGear does an excellent job of upselling his customer after an add to cart by dynamically generating offers based on the contents.
On Amazon, you can also add upsells to your product listings in the form of quantity discounts.
In Seller Central, simply create a percentage off promotion where your customer gets a significant discount when larger quantities are purchased.
Offer an upsell after checkout
Just because a customer has already paid doesn’t mean the transaction is done. You can also offer a special promotion to your customer immediately after checkout in your order confirmation email.
Post-purchase emails have a 61.7 percent open rate and a 9.7 percent clickthrough rate, according to SaleCycle. As a result, your order confirmation email is a great place to upsell your customers.
Dollar Shave Club uses this strategy extensively and here’s an example of their upsell email receipts.
Cross-sell via email
Ideally, you should source products to sell in your shop that match or go well together.
For our store, we discovered that customers who purchase cocktail napkins are highly likely to buy matching dinner napkins.
As a result, we always cross-sell our cocktail napkins in our post-purchase email sequence to entice customers to buy an entire matching set.
These cross-sell emails can be dynamically sent in Klaviyo based on what the customer purchased.
Here’s a sample email from my sequence.
5. Cross-sell via ads
Both Facebook and Google can track exactly what your customers buy together.
And with this information, they can automatically generate advertisements displaying related products to your customers.
For example, here’s a Facebook ad that is dynamically generated based on what a customer has recently purchased from our store.
This advertisement typically generates a six to twelve times ROI and is one of my most profitable ads on Facebook.
6. Leverage Facebook lookalike audiences to find new high LTV customers
Lookalike audiences are people who have similar profiles, needs, and interests as your repeat customers.
You can upload the email list of your biggest and most consistent customers to Facebook. Then, Facebook will find users who match these profiles.
For example, Facebook can help you find users with high purchasing power or large needs for your product.
Here’s what some of my lookalike audiences look like from my Facebook ads account. These audiences are all generated from custom segments in Klaviyo that are dynamically and automatically exported to Facebook.
Once you’ve identified your audience, you can use Facebook Ads to exponentially scale your business.
7. Implement a customer loyalty program
Bottom line, customers who sign up for your loyalty program are likely to be high LTV customers.
Here’s a list of benefits your online store can get from a loyalty program:
- More sales: According to Bain and Company, increasing your customer retention by 5 percent can lead to revenue growth of up to 75 percent.
- Customer data: Loyalty programs are an opportunity to gather data about your customer’s spending habits. This data will give you insight into profitable products and the best times to sell them.
- Loyal customers: Customers appreciate rewards points and develop an emotional connection with your business.
- Customer referrals: Rewards points encourage your existing customers to refer their friends.
8. Implement a referral program
Aside from rewarding repeat customers, you should also give incentives for referrals.
After all, customers acquired through referrals have a 37 percent higher retention rate, according to Deloitte. Furthermore, a referred customers’ LTV is 16 percent higher when compared to non-referred customers.
Overall, a good referral program can minimize your customer acquisition costs because referred customers are four times more likely to make a purchase.
So give out coupon codes or gift cards to both customers and their referrals. Your current customer gets to enjoy the benefits, while their referrals also get a good deal for your products.
9. Offer tiered discounts based on inactivity
Sending out discounts or coupons is a fast and easy way to boost your sales. Customers tend to buy higher-priced items because of the extra buying power that discounts give.
Discounts can also encourage customers to purchase more products, but you don’t want to overdo it.
To avoid over discounting, you should structure your discounts based on when a customer last made a purchase.
For example, my customers who haven’t purchased in 90 days get a higher discount than those who haven’t purchased in 60 days.
In addition, discounts may not be necessary for regular customers which is why segmentation is important.
You should employ a tiered discounting system to make sure that you don’t discount more than you have to in order to obtain a sale.
Boosting the customer lifetime value (LTV) and average order value (AOV) of your top customers will build a solid foundation for your ecommerce business and you can count on these customers to generate repeat sales every year.
Your most loyal clientele will also bring in referrals to help grow your top line, as well.
By focusing your efforts on your existing customers, you’ll get the most bang for your buck.
Learn more about customer lifetime value and how to calculate it.Back to Blog Home