In ecommerce, acquiring customers is only half the battle. 

You should also pay attention to maximizing Customer Lifetime Value (CLV), which is the key to sustainable growth. 

CLV is a metric that gauges the average value or profitability that each customer adds to your business. It can help you make data-driven, strategic decisions when it comes to your marketing, customer retention initiatives, conversion rate optimization, and overall resource allocation. 

In this guide, we'll dive into the importance of CLV in ecommerce, how to measure it, and proven ways to maximize it. 

We'll also cover a few real-world examples to reinforce your strategy with actual data. 

Let's get started. 

What is Customer Lifetime Value (CLV)?

In simple terms, CLV measures the cumulative revenue a customer generates for a business throughout their entire lifecycle. 

Tracking CLV lets you take a more accurate, long-term view of your ecommerce business's profitability. It can help you: 

• Construct a more detailed profile of your most valuable customers
• Build and improve customer loyalty
• Refine your targeting strategy for paid advertising
• Identify your most (and least) effective marketing channels
• Improve the accuracy of sales and revenue forecasting
• Create better and more personalized content marketing strategies

The bottom line is, CLV enables you to evaluate the performance of your ecommerce business in ways you haven't seen before. 

For example, a lot of aspiring startups, entrepreneurs, and small ecommerce businesses worry too much about Customer Acquisition Costs (CAC), especially if their average individual sale doesn't match their marketing and advertising spend. 

However, some of them forget to factor in repeat purchases from the customers they already acquired. 

By shifting their focus to CLV, these ecommerce brands can explore more sustainable strategies that generate value in the long run. At the same time, they can ease up on spending more on marketing and advertising strategies, which can be substantially more competitive and expensive over time. 

What are the Types of CLV Models? 

Before going any further, here's a quick overview of the two different CLV models: historic CLV and predictive CLV.

Historic CLV focuses on past sales data to analyze the effectiveness of current strategies. 

Predictive CLV also scans historical data, but mainly to estimate future performance or customer behaviors. This can use probabilistic models or Machine Learning (ML) for more accurate insights.

How to Calculate Customer Lifetime Value

A typical formula for calculating CLV is as follows:

• AOV (Average Order Value) — The average value of purchases per transaction. 
• ANT (Average Number of Transactions) — The average number of transactions in an entire customer lifecycle. 
• ACL (Average Customer Lifetime) — The average number of months a customer remains active. 

Beyond these metrics, CLV is also influenced by a variety of factors. 

Customer Retention Rate (CRR), for example, is the percentage of customers that stay active after a specific timeframe. Both upsell rate and price also have a direct relationship with your CLV. 

To help you understand how CLV is calculated, let's say your average customer stays active for around six months. Each month, customers make two purchases on average, with each transaction costing exactly $50 (your AOV). 

Plugging these numbers into the formula above and you'll get: 

If you want to calculate your predictive CLV, the most practical approach is to use an AI tool for ecommerce. That's because predictive CLV crunches large datasets to understand customer behavior, tap into performance trends, and set reliable projections. 

A simpler version of predictive CLV, however, can be calculated by hand. 

The key is to use historical customer data to create segments based on behavior, like high-frequency or high-price purchases. You can then track the historical CLV for those segments to predict the future value of customers that fit each profile. 

Lastly, don't forget to set realistic CLV goals by looking at industry benchmarks. 

Check out Retina's CLV Benchmark Reports to figure out the average CLV in your niche.

Why Focusing on CLV is More Profitable Than Pure Acquisition

Keep in mind that it's never about customer acquisition vs CLV. 

However, there is a strong case that optimizing CLV can be substantially more profitable than purely focusing on customer acquisition. 

For one, generating new customers costs 5x more than selling to existing customers. 

Remember, you're sidestepping a lot of costs in terms of marketing to sell products. That's why a healthy CLV lets you enjoy wider profit margins and more sustainable growth. 

Understanding the true, long-term value of customers will also help you make better decisions in terms of marketing spend, product development, customer support, ad targeting, and pretty much every other customer-facing aspect of ecommerce. 

Examples of CLV-Focused Brands

Here's one more thing: Tracking CLV can point you to bolder opportunities that may seem risky at first, but can prove to be highly profitable if you look at the big picture. 

Take a look at these examples: 

• Amazon — One of the most popular examples of CLV-focused initiatives in ecommerce is Amazon Prime. It is a subscription that implements a straightforward reward structure that encourages customers to come back and buy more, including free shipping, special discounts, and free access to other Amazon products.
• Forever 21 — This world-renowned fashion brand also stimulates CLV through loyalty programs and its exclusive F21 Credit Card. Customers can also sign up for their newsletter to receive marketing emails, which occasionally include promotional offers.
• Newegg — Lastly, Newegg's multi-faceted approach to maximizing CLV includes regular offers through social media, product recommendations (e.g., similar products and "combo offers"), and a newsletter. Newegg also comes with a handy mobile app where customers can access their wishlist, request customer support, and more.

Key Strategies to Increase CLV for Ecommerce Brands

Great — you now know all about CLV, how to measure it, and why it matters for ecommerce businesses. 

It's about time we look into actual strategies that can increase your CLV and unlock your ecommerce website's revenue potential.

1. Personalization

Personalized marketing and customer experiences can go a long way in terms of ramping up your CLV. 

A popular strategy is to send out newsletters that contain new product releases as well as exclusive offers to encourage repeat purchases. Or, you can share relevant industry news, reports, new blog posts, or anything that can keep your ecommerce brand top of mind.

To take personalization to the next level, consider automating personalized or remarketing emails with a tool like Mailchimp. This comes with ready-to-use automated campaign templates, like:

• Personalized product recommendations
• "Welcome" emails
• Abandoned cart emails

2. Loyalty Programs

Loyalty programs are exceptionally effective in generating repeat purchases and maximizing customer lifespan. 

To give you an idea of how effective they are, let's take a look at the numbers on Starbucks Rewards—one of the biggest loyalty programs in the world. 

According to a Q3 2023 earnings call, Starbucks Rewards tender was responsible for 57% of the company's operating revenue. 

In this loyalty program, customers receive benefits such as free pastries, tea refills, free merchandise, and various perks in exchange for "Stars," which are earned per dollar spent. This incentivizes repeat purchases and boosts CLV.

3. Subscription Models

If you're selling products that customers are expected to purchase on repeat, you could keep them locked in with a subscription model. 

Ecommerce brands like Dollar Shave Club use this strategy with their blade products. Rather than having customers reorder manually, they can conveniently set up a subscription for up to four months at a time. 

4. Cross-Selling and Upselling

Seizing upselling and cross-selling opportunities improves your CLV by maximizing your profits per transaction. 

A simple yet effective strategy is to present customers with product recommendations at any point throughout the customer journey. 

For example, Glamnetic's cross-selling strategy includes presenting discounted add-ons whenever adding products to cart. 

5. Improved Customer Support

High-quality, dependable customer support improves customer satisfaction and fosters loyalty—a combination that increases customer retention and, by extension, CLV.

Consider implementing customer support solutions like live chat and a help center to ensure customers can make the most out of your products. The more satisfied they are with your service, the more likely they are to stay loyal to your brand.

6. Post-Purchase Engagement

Aside from newsletters, other types of post-purchase engagements you can use include social media promotions, review or feedback requests, and promotional emails (e.g., Black Friday sales and "birthday" offers). 

That's why it's important to establish remarketing channels early in the customer lifecycle. Grab their email addresses, encourage them to follow you on social media, and regularly publish informative content like tutorials, hacks, and to keep them coming back. 

Segmenting Customers Based on CLV

Another way to maximize your ecommerce CLV is to use advanced customer segmentation.

At the base level, you may start with two customer segments: high-value and low-value customers. You can also explore other subgroups based on categories like the marketing channel they came from, buying modalities (one-time or subscription), and their level of familiarity with your brand. 

According to Proteus Digital Lab founder and CEO Matthew Barnes, "not all traffic is created equal." 

If you want to maximize CLV, you need to look at the metrics on a segment-level to sharpen your customer analysis and decision-making. 

For example, most ecommerce brands can split their customer segments into three tiers: 

• VIP — Frequent shoppers who make large purchases and stay for a long time.
• Regulars — Shoppers who make repeat purchases within reasonable intervals (including subscribers). 
• Occasional buyers — Customers with no definitive repeat purchase behavior, have long periods of inactivity, and can easily switch to a competitor given the right circumstances (including one-time buyers).

Naturally, these customer segments won't have the same CLV. And in order to maximize their value to your business, you need to develop personalized marketing strategies tailored to each group. 

To give you an idea, Matthew Barnes previously worked with a bracelet company with two distinct customer segments: people coming from ads and those coming from search queries pertaining to product features. 

"Customers entering through ads focused on artisanal craftsmanship are directed to pages highlighting this story," says Matthew. "Customers attracted by unique product features, such as customizable options, are taken directly to product configurator pages."

Below are a few more scenarios to think about:

• If customers are coming through a paid channel, emphasize subscription or repeat purchase options. This will potentially convert one-time customers into repeat buyers.  
• Conduct fungibility testing to swap out products that most customers perceive as equally valuable. Doing so may not directly affect CLV, but it's incredibly helpful when you're undergoing inventory clearance and new product launches. 
• Revitalizing your regular and occasional buyers. Once you have clearly-defined customer segments, you can plan and execute your remarketing initiatives based on what their groups need (e.g., promoting discounts or coupon codes to regular customers and remarketing emails or ads to occasional customers).  

To build and manage your customer segments, consider investing in CRM tools like HubSpot and Salesforce. These tools also come with automation workflow builders, automatically completing tedious tasks that would normally take humans a few hours to finish.  

Real World Examples

Before we wrap up, let's take a quick look at some real-world examples of CLV optimization tactics that got results.

1. Birdies Increase Revenue Per User by 4%

Loading speed is a huge factor that directly correlates to the user experience and CLV.

The slower your website, the less likely customers will commit to a purchase decision. And that's bad for your CLV. 

Birdies, a modern footwear brand, came up with a simple solution that requires zero preparation or technical skills to use. By signing up for Nostra AI's Edge Delivery Engine, they are able to provide stellar, smooth user experiences, and without having to remove or disable on-page features like live chat, popups, and animations. 

Within 30 minutes, Nostra AI was able to reduce Birdie's Time to First Byte (TTFB) from 1,380ms all the way to 170ms. In terms of profitability, utilizing edge delivery increased per user by 4 percent. 

2. Boarderie Increases Conversions by 14% 

Boarderie is another ecommerce brand supported by Nostra AI's Edge Delivery Engine to create impactful and compelling shopping experiences. 

Their visual-heavy pages include review requests, product recommendations, and other CLV optimization elements. The company also offers a loyalty program enabling customers to redeem points for discounts, exclusive offers, and perks. 

With the help of Nostra AI, the company was also able to optimize the website's loading speed — mitigating the performance drawbacks of their CLV optimization tactics.

This resulted in a 14% uptick in conversions, a 40% improvement in loading speed, and a 66% reduction in TTFB. 

You can read more about this case study here.

Conclusion: How Nostra Can Help 

Nostra AI's core product is the Edge Delivery Network, which will give your ecommerce website a substantial performance boost. 

This will have a profound effect on conversion and engagement metrics across the board—all of which benefits customer satisfaction and, by extension, your CLV. 

Book a demo here to witness the benefits of industry-leading edge delivery firsthand.