As an Amazon seller, increasing your customer lifetime value is one of the most important steps you can take to increase profits on the platform. We’ve outlined a few easy ways to help make this happen:
- Start with customer retention: find out how long it takes for customers–including those who have been loyal to you over time–to buy from you again in the next year, and the percentage to most likely buy again.
- Next calculate which groups will bring in more profit: those that make repeat purchases or new potential buyers?
- Determine Your Customer Acquisition Cost (CAC) Ratio: how much do you spend acquiring each new client?
- Utilize an Amazon profit tracker: track your profitability and see your cost for every sale.
Understanding Customer Lifetime Value
One of the more important key metrics in business is customer lifetime value, or CLV, also known as lifetime value or LTV. This measure tells you how much a single client will spend over their entire relationship with your company and varies from one industry to another–anything from high-cost items like cars all the way down to small purchases like ice cream cones. As the item’s cost gets higher, there’s less risk for customers to switch brands.
But even when looking at low-priced goods, companies should take into consideration not just what each product costs, but also what percentage of revenue comes back as profit after paying expenses such as shipping fees. That number depends heavily on where products are sold: online margins can sometimes exceed 50 %.
The CLV is an important metric that can help you grow your business and increase profitability. In this blog, we will go over how CLV works, why it’s so important for Amazon businesses, and what strategies are available to maximize profit from each individual sale by increasing customer lifetime value on Amazon.
- CLV calculates the dollar amount of revenue generated per month. This figure is based on the average monthly purchase volume multiplied by annualized percentage of repeat purchases.
- The rate at which customers return as repeat purchasers determines their loyalty or “customer retention.”
- Increasing your CLV will result in increased profits
Calculating Customer Lifetime Value
Customer Value = Average Purchase Value * Average Number of Purchases
The lifetime value is a multiplication of the customer value and the average lifespan of the specific customer.
Why You Need Higher Customer Lifetime Value on Amazon
It is cheaper to retain customers than it is to acquire them. The key reason for this is that once you convert a customer, they are more likely to buy again from your business, generating long-term profits and revenue. You also usually don’t need to dedicate as much ad spend on a current customer as they are already familiar with your brand, whereas you do with new shoppers in efforts to engage them to make a purchase.
This idea also goes hand-in-hand with the concept of full-funnel marketing. As you understand more about CLV, you can create customized marketing strategies targeted at specific demographics or segments, basing your efforts on the total revenues generated by each segment.
If you want to increase your revenue and optimize business performance, then it’s time for full-funnel marketing. With this, you can design ad campaigns specifically geared toward various customer needs and behavior. With this approach in mind, Amazon advertising reports become more useful as they provide insights into how the ad performs with different audiences or segments of people who have bought from you before.
What is a Good Customer Lifetime Value
In general, your Customer Lifetime Value should be at least three times greater than your Customer Acquisition Cost (CAC). This is because your CLV has to essentially cover all the expenses associated with every customer. This would include marketing, shipping, customer service, the specific technology you use, and more. For example, if you’re spending $100 on marketing to acquire a new customer, that customer should have an LTV of at least $300. A 3:1 LTV to CAC ratio will help you reach a high-profit margin so you can scale your business.
Tips to Boost Customer Lifetime Value
- Get to Know Your Customer
To generate revenue from your customers, you need to study their buying patterns and understand how likely they are to buy again based on past purchases. Longitudinal data, which shows repeated observations of the same subject over multiple points in time, will help predict a customer’s future habits so companies can target ads for maximum effect and maximize lifetime value.
- Offer Product bundles
Combining complementary products together in an easy-to-find tab or section ensures repeat buyers because people prefer getting things all at once instead of having to go back through pages, trying to find what they’re looking for. Customers are drawn in by the convenience of a bundled product.
The best way to create bundles is to pick complementary items that will be useful together, while also saving customers money on shipping costs. By bundling products together without any competition, you can maximize your customer lifetime value because repeat purchases from satisfied customers mean higher profits over time than one-time sales when a shopper buys something just as an impulse purchase while browsing Amazon.
The best way to find the right products for your bundle is by using insights from what customers are buying together. This can help you build bundles that save both time and money, which in turn will increase average order value (AOV) and customer lifetime values (CLV).
- Subscribe and Save
Amazon’s Subscribe and Save can increase your repeat purchases, while saving you money on additional costs. It’s essentially grocery delivery for customers who opt into the service, and they are less likely to switch brands or buy from another retailer. It also means that sellers have a customer who will be purchasing only their goods in bulk, long-term; this is great news considering these customers would otherwise not purchase at all if they were given the opportunity to shop around more often.
- Include Product Inserts
Product inserts do more than just remind customers to leave reviews. You can improve your product insert by reminding the customer that you sell a variety of products and encouraging them to browse through your Amazon store. Amazon’s Terms of Service (TOS) are pretty strict about what sellers are allowed to ask of their customers, so ensure that all your messaging remains within these guidelines.
Third-party software like SellerMobile’s Chrome extension helps you to get hundreds of reviews from your satisfied customers and is a useful tool to have in your arsenal. You might be tempted to skip using third-party tools for managing your reviews and ratings because they seem like too much work, but in fact they do most of the work for you! SellerMobile gives sellers more control because you can automate the tedious process of asking for customer reviews, and they are all Amazon-approved.
SellerMobile’s extension will make for an easy process as well as helping garner more and more positive impressions to add to your product listings, creating more buzz among potential shoppers. Negative customer sentiments can really impact sales if customers read about any dissatisfaction other people have had with an item in question; this is why influencing what’s posted online from the start helps eliminate these effects.
- Measure Product Specific CLV
To improve your product’s CLV, measure any changes to your product, packaging, shipping methods, and advertising for specific items, along with other factors that may play into customer satisfaction. Focus on those measurements and how they affect your sales. You don’t need to spend hours on Excel sheets or staring at your computer waiting for reports. SellerApp’s Product Analysis feature in the Advertising suite will help you understand how products perform, what ads work best, and which may be underperforming so that you can optimize campaign structure and ad spends accordingly.
- Give Preference to High-CVL Products
Highlight your products with high customer lifetime value through targeted ads. These are the products that bring repeat purchases and also push customers to purchase other items in your portfolio, and they may be new items or long-time bestsellers–they’re your star product! Winning better ad placements for these products will also grow organic traffic over time. Targeting them aggressively may open doors to bidding on expensive keywords which can help you increase CLV overall over time, too.
Taking on the competition by using Sponsored Products and Sponsored Brands ads is a good strategy if you have competitive products. Targeting high-value, non-branded keywords with Amazon Ads can help improve organic rankings on the site as well.
- Inspire Brand Loyalty
All your efforts boil down to convincing the consumer, and you need to show them that they are important, from the time of pre-purchase to every subsequent purchase. Amazon itself can help make this happen: Sponsored Brand Ads allow for more than just advertising; when customers click on these ads, they’re taken to either an individual landing page or a customized home store. This provides the shopper with a unique experience where you can establish a brand identity that will inspire recognition and hopefully loyalty.
- Establish an Online Presence Aside From Amazon
There are a few ways you can build an online presence for your business outside of Amazon. You could start with social media channels like Facebook, Instagram and LinkedIn to help keep in touch with customers. It’s also important to have a website so they know where else they might find the products that you offer as well as any upcoming launches, latest news, or special promotions from your company. This is how brands become more recognizable, while also improving customer service because they can learn more about shoppers based on data that can be gathered from web analytics, which leads back to building better relationships and increasing CLV.
- Gain More Customers on Amazon With Content Marketing
Amazon Posts are one of the latest features available–in beta–for US sellers registered in Amazon Brand Registry. The content is focused around your product and can be helpful in building brand loyalty. Posts are the latest way for sellers to increase CLV. Amazon has been a leader in the e-commerce world for some time now, so it is no surprise that they have continued this trend by adding their own take on influencer marketing and customer engagement with Posts.
Amazon Posts is an excellent way to:
- expand your business and marketing experience
- boost brand awareness
- heighten product discovery
- increase customer lifetime value on the site itself
Wrapping Up
Now that you know more about the formula to boosting customer lifetime value for your customer, you can go ahead and get busy optimizing your business potential. Follow our list of tips, and you should start to see more repeat customers and your Customer Lifetime Value will increase, in turn, growing your Amazon business. Another way to guarantee FBA growth is to make sure you’re utilizing an Amazon Seller Central repricer like SellerMobile. Software with repricing capabilities will keep your products competitive and make sure your store always has the best price, automatically tracking similar items and lowering your prices to match rival products when you have an FBA repricer doing the work for you.
