Every ecommerce retailer tries to run their online store profitable and durable. The retailers use every possible combination of branding, marketing campaigns, and product quality. However, is this the only thing required to run a successful online business, or is there any “secret” ingredient that helps these online stores overcome the horrifying obstacle of an 80% failure rate in the industry?

There is no guaranteed way of getting success in any business. Still, there are some online business strategies by which you can grow an ecommerce store into a durable online business. One such way is increasing ecommerce lifetime value. But what is lifetime value, and how, to achieve it to the required levels? We will discuss all these points in this article. We will go through all the different aspects of LTV and the top tips on how to increase LTV.

What Is eCommerce Customer Lifetime Value? And Why Does It Matters?

Popularly known as Customer Lifetime Value, the Ecommerce Lifetime Value stands for the net profit that your online store made by investing in a single computer.

Essentially, the concept is based on the fact that focusing your marketing & sales efforts on your existing efforts will give you a higher ROI than acquiring new customers. Also, by concentrating on LTV instead of acquiring new customers, you can make better business predictions regarding the cash flow and required sales strategies. Moreover, you can also the overall customer experiences in a better way with more insightful information of what your online store needs to improve for more growth.

Ways To Calculate eCommerce Customer Lifetime Value

There is a simple formula for calculating the average LTV of your ecommerce store. It is like this:

Ecommerce Customer Lifetime Value = Average order value x Frequency of Sales x Average Customer Lifespan

You have to determine all these 3 different attributes to calculate ecommerce lifetime value. Well, you don’t be an expert mathematician for calculating these 3 terms. It is a simple maths like this:

  • Average Order Value: (Total Revenue) / (Total no. of purchases)
  • Frequency Of Sales: (Total no. of purchases) / (Number of Customers)
  • Average Customer Lifespan: (Time in years in which customers have purchased from your store) / Number of customers

Now Suppose The Actual Figures Are Like This:

  • The average order value comes out to be $100
  • The frequency of sales is 3 purchases per year
  • The average customer lifespan is 5 years

Putting all these figures in the above formula of ecommerce lifetime value:

100 x 3 x 5 =$1500

Thus, the resultant amount, i.e., $1,500, is your ecommerce lifetime value.

How To Increase The Lifetime Value Of Your eCommerce Store?

There are many different ways of increasing the LTV of your online store. However, we will discuss two concrete methods by which you must give your attention and efforts.

  • First, you have to increase LTV by boosting average order values, i.e., the customers should spend more money than they currently are. Upselling and Cross-selling are excellent methods of increasing average order value.
  • Another way is to increase the order frequency. To increase the frequency of orders, you have to utilize several marketing strategies to compel the customers to shop more often from your store.

Both these methods are equally effective, and it depends upon you which metric you find easier to increase. But make sure that to achieve the best results, you have to improve both AOV and sales frequency.

How To Increase eCommerce Lifetime Value Through Average Order Value?

1. Bundling

Creating bundled products or grouped products is the first way of increasing the average order value in your store.

You can incentivize the customers with free shipping or discounts if they buy several products together, which will motivate them to spend more.

Bundling not just lets you sell more but also decreases marketing and distribution costs. You don’t need to market every product, but a group and bundling will eliminate inventory waste. You can use bundling to clear out the old deadstock before it becomes a problem. A few types of bundled products are Pure bundles, New product bundles, Mix-and-match bundles, Cross-sell bundles, Gifting bundles, Inventory clearance bundles, Buy-one-get-one bundles, etc.

2. Cross-Selling

ecommerce Cross Sell

In the cross-selling strategy, you sell related products to the one a customer is buying. These products can be of any category but will complement each other, such as beans for a bean bag. Suppose a customer is buying a smartphone on your ecommerce site. Then as a cross-selling strategy, you can suggest products like screen protectors, phone cases, or headphones. If the user is buying a pair of sneakers, you can come with recommendations like socks, shoelaces, polish, or other shoe care products.

The ecommerce cross-sell products strategy aims to make customers purchase items they didn’t have in mind when they came to your ecommerce platform. It is similar to those salesmen in the brick & mortar stores that help your shopping.

3. Upselling

ecommerce upselling

Upselling products on ecommerce simply means persuading the customer to spend more money on your site than they initially planned while making a purchase. Suppose a customer buys a bean bag online for $100, however, without beans. Then on the checkout page or at the cart page, you would see an option of purchasing beans at $10 if you are buying them along with the bean bag; else, they can even cost you $15 if purchased alone. This is a perfect example of upselling in which you are attracting the customer to buy more on your site.

In upselling, you mainly offer a better version of the product to purchase to make a more significant sale. It can initially sound unethical or spammy, but it’s not.  Upselling is why we have a 40 inch TV in our drawing while we planned for a 32 inch TV.

4. Giving discounts on high-volume orders

If you run a B2B ecommerce store with vast volumes of orders, then it would be a great idea to offer a discount if the customer is buying in bulk. Like bundling products, you can make huge sales through this strategy and save tons of money on operational or marketing costs.

To fully leverage this strategy, make it clear that you offer high order volume discounts to the customers. The customers will feel motivated to spend more and save by ordering in bulk.

5. Free shipping threshold

Lastly, if you want a guaranteed way to motivate customers to spend more on your store, you can consider adding a free shipping threshold to your ecommerce site. According to Invesp, orders with free shipping have a 30% higher AOV, and nearly one-third of customers will be ready to join a loyalty program to get free shipping.

E.g., Suppose there is no free shipping threshold set on your store. In this case, the customers will not even think to buy $200-$400 worth of items as they have to pay $50 for shipping. But if you have set a $500 to become an order eligible for free shipping, the customers will always try to make their order value of $500.

How To Increase eCommerce Lifetime Value Through Order Frequency?

1. Email Marketing

Omnisend Email Marketing app for Shopify

E-mail marketing is one of the oldest yet effective marketing strategies to invite customers to your store to buy more. It has an impressive high potential ROI and can increase ecommerce lifetime value by boosting order frequency.

You just have to create a well-executed campaign for different purposes such as abandoned cart e-mail, festive offers or holiday promotions e-mails, discounts e-mails, new arrivals, etc. You must also have a list of e-mail addresses of your target audience. Sending the correct mail to the right audience can do wonders by motivating people to buy from your online store more often. You can offer periodical sales or may want to time product launches to create a consistent stream of income, then send out notifications to your existing clients. You can also make the e-mails automated.

Whatever method you choose in e-mail marketing is entirely up to you. But it is for sure that investing in e-mail marketing is worth it as it will increase your customer lifetime value at an affordable investment.

2. Creating Subscription offers

One of the best ways to increase order frequency is to make purchasing from your online store easy & convenient, and what can be a better way to achieve it than offering subscriptions to your buyers?

If you allow customers to set up recurring orders for products they’re bound to run out of, you are not just making their lives easier but also preventing them from reaching out to your competitors.

3. Loyalty programs

Reviews, Loyalty, Wishlist by Growave app Shopify

A customer loyalty program in an ecommerce store is a customer retention tool focused on keeping and engaging your customers. This will result in more shopping from your store by customers, regular shopping, and frequent interaction with your brand. An effective customer loyalty program should be easy-to-understand, with a clear path to rewards, and provide a fun experience. Some of the popular types of loyalty programs are:

  • Point-based Loyalty Programs
  • Tiered Loyalty Programs
  • Perk based Loyalty Programs
  • Hybrid Programs
  • Subscription-based Loyalty Programs

4. Retargeting

Last but not least, employing retargeting techniques is an effective way to increase customer lifetime value through order frequency. You can motivate customers to make another purchase from your store.

For instance, if a person has recently purchased a product from your store and is offering a product that can complement that item, retargeting can be a great way to make them shop at your store again.

Wrapping Up

This article has gone through highly effective ways to increase ecommerce lifetime value either by Average Order Value or through Order frequency. While adopting these tactics to get desired results, you must not forget the basics that can contribute higher to Ecommerce lifetime value which are:

  • Top-notch customer service
  • Highly functional and intuitive user experience
  • A focused branding strategy

If you achieve this criterion while putting effort into the above-mentioned strategies, you will get a higher LTV. Hire the best ecommerce development company, which has expertise in developing ecommerce stores with attractive UI and advanced functionalities. 

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CTO at Emizentech and a member of the Forbes technology council, Amit Samsukha, is acknowledged by the Indian tech world as an innovator and community builder. He has a well-established vocation with 12+ years of progressive experience in the technology industry. He directs all product initiatives, worldwide sales and marketing, and business enablement. He has spearheaded the journey in the e-commerce landscape for various businesses in India and the U.S.