Seasoned businessmen understand it well: it costs 5 to 7 times more to get a new customer than keeping the one who is already theirs. Though, many Shopify store owners not only forget about those existing customers but also spend their whole time and efforts attracting new visitors. Real growth is from the profit that businesses will make from the customer over the entire lifetime of the relationship with the brand (also known as increasing customer lifetime value).
What Is Customer Lifetime Value and Why Does It Matter for Shopify Stores?
Customer Lifetime Value (CLV) refers to the total amount of money that one customer account can generate over the entire period of a business relationship. CLV of a Shopify store is worked out by a very straightforward equation: Average Order Value (AOV) × Purchase Frequency × Customer Lifespan.
Case in point, a customer places an order for $80 each time, comes to shop with you 2.5 times every year and the lifetime of a customer with you is 2.5 years, their CLV will be $500. Let us say you improve the customer journey, and implement a loyalty program that causes the lifespan to increase to 3 years. The new CLV will be $720, which is 44% more.
What is the point? Well, when you direct your attention to CLV, you will be able to see the difference between the long term and the short term transaction. It is the most important metric. Retaining 5% customers can result in an increase of profits by 25% to 95%, as per Bain & Company. For Shopify merchants, there will be more steady income, better return on investment related to marketing activities, and a business environment that is more robust.
How to Calculate Customer Lifetime Value on Shopify
Working out CLV on Shopify is not something that a person who has undergone education at the level of data science should do. Here is a pretty simple way by which you can do it:
Step 1: Gather the Core Data Points
Three figures will be required from you: Average Order Value (AOV), Purchase Frequency, and Average Customer Lifespan. You can have a glance at AOV in the Shopify analytics section under "Sales". Purchase frequency means a number of orders that a customer makes a year. Lifespan is the average duration for which a customer is considered active, generally 2-3 years for the most of the e-commerce establishments.
Step 2: Apply the Formula
If you are in haste, consider the below numbers: the AOV is $60, the customers buy 4 times a year whereas their lifetime with you is 2 years giving a resulting CLV of $480.
Step 3: Use Shopify Apps for Automation
Applications like Lifetimely or RetentionX can make this calculation automatically by using your store data. They also categorize customers based on their value, meaning you will be able to figure out top buyers from your customers, who might be 20% of total and responsible for the bulk of your revenues.
Step 4: Identify High-Value Customers
You can identify your repeated buyers, what can be their probable purchase, where these buyers could be residing. These can be your valuable and high value customers when you decide to allocate resources like in personalized marketing, loyalty programs or exclusive offers.
The Role of Local Inventory in Driving High-Intent Shoppers
Omnichannel retention strategy is greatly facilitated by local inventory features. When a customer's product search reveals the availability of a product in a nearby store, their purchase intention is highly boosted and they are almost set to buy and here is where the value of local inventory visibility on Shopify comes in.
Through real-time stock level display across different locations on product pages, a local shopper like one in New York can quickly see availability of the desired product in his or her local store in Brooklyn. This level of openness and transparency not only eases the customer journey but also fosters reliability and turns a mere explorer into a purchaser.
Yet, that purchase is just one of many as without a capture system for the customer's details and a loyalty rewarding mechanism, that high-intent shopper is going to be just a one-time buyer. Hence, this next section is about showing you how to convert that first time buyer into a loyal customer that increases their Lifetime Value.
Building a Shopify Loyalty Program to Retain Customers
A well-built customer loyalty program offers a great opportunity for first-time buyers to be converted into the regular ones. The program will modify customer's behavioral patterns as they will feel rewarded and valued, while at the same time getting discouraged to shop outside your brand if they are having points or the perks connected to your brand.
Key Elements of a Successful Loyalty Program
- Points for Purchasing - Silver & Gold customers (different tiers for high value customers) are rewarded for buying products by giving them points for every dollar spent. (e.g. 1 point for every dollar, 100 points for $5 off).
- Unique Advantages - Guaranteed special advantages, such as the first access to new collections or exclusive shopping events.
- Benefits Aggregation - Design tiers (e.g. Silver Gold Platinum) as the level of expenditure - as customers move up levels they receive more valuable benefits, which encourages higher AOV.
How to Integrate Loyalty with Local Inventory
Imagine a customer buys a jacket from your online store after checking local inventory. With a loyalty program, you can:
- Give points for this purchase.
- Email them personally and sweeten the deal by giving bonus points if they come into your store for a fitting.
- Based on their purchase history, suggest accessories or products they might want, like a pair of similar boots at the store located near them.
Such an omnichannel approach is a way of customer engagement at all the touchpoints. There are some amazing Shopify apps like Flits Shopify loyalty app that help Shopify business owners easily implement their customer loyalty programmes and enhance their customer retention.
Personalizing Marketing for High-Value Customers
Differences exist amongst customers with some being 20% of top customers that generate 80% of revenues (Pareto Principle). Marketing on a personalized basis for this very high value customer set is the most efficient way of growing customer lifetime value.
Segment by Behavior and Value
Segmenting from CLV can be:
- High-Value - CLV > $500 Customers. You can send them previews of your collections, VIP discount coupons, and early sale invitations.
- At Risk - Customers who have not purchased in 6 months. Trigger a re-engagement email with a "We miss you" offer.
- New - First-time buyers. Nurture them with a welcome series that highlights your loyalty program.
Omnichannel Personalization
Personalization is more than just sending tailored emails. Omnichannel personalization that aims to create a seamless experience with all the customer touchpoints, is the ultimate goal. Consider customers who have browsed your website, who then unexpectedly, see the same products through social media ads or even in-store kiosks.
The same thing applies to Shopify brands who are planning to connect customer data through collaboration of the store, loyalty app, and point-of-sale system activities.
Common Challenges in Measuring and Optimizing CLV
Even with the best intentions, Shopify merchants face hurdles in CLV optimization:
Data Silos
Customer data is usually recorded and resides in different systems, Shopify for sales, a loyalty app for rewards, and a third-party tool for email marketing. Without integration, you get an incomplete picture. Solution: Use apps that centralize data, like Flits, which unifies customer profiles and loyalty activity.
Short Customer Lifespan
Most Shopify stores face the challenge of their customers making only one or two purchases and then dropping off. One of the main reasons for this is lack of post-purchase engagement. To address this issue, consider using automated follow-ups, personalized recommendations, and a powerful loyalty program as your weapons.
Measuring ROI of Loyalty Programs
Loyalty programs may or may not be the keys to raising CLV. So, it's not straightforward to evaluate their effectiveness. You can monitor changes in repeat purchase rate, average order value of loyalty members, and customer lifespan at intervals before and after introducing the program as your indicators.
How Local Inventory Visibility Helps with Omnichannel Retention
Customers who get real-time visibility into local inventory across various physical locations, are more likely to return to your Shopify website. It is the very first step to introducing an omnichannel retention system. Having a good stock of a product nearby is a new factor that influences the customer's decision to buy and contributes to the customer's willingness to return if the experience is smooth.
What's more, loyalty and personalization tools can help you close the loop. So, for instance:
- A customer does an inventory check on your store website, completes the order online, and then picks up the product in-store.
- By keeping track of the location data from local inventory management apps, you can send offers that will appeal to that specific sector.
- The customer receives loyalty points for the purchase and so is motivated to make another visit.
That way, a mere inventory check on the client part turns into a long-term bond between you. Kark is a well known Shopify app for this use case that allows Shopify businesses to manage and update their local inventory in real time, thus giving the customers real information on product availability at the physical stores.
Quick Glance: Actionable Steps to Increase CLV on Shopify
These are the action points for you to implement everything:
1. Calculate your current CLV by using the formula: AOV × Frequency × Lifespan.
2. Install a local inventory app such as Kark to display the live stock level of the nearby stores.
3. Implement a loyalty program using Flits to reward purchases and create a customer database.
4. Divide your customers based on their CLV and personalize marketing for high-value customers.
5. Record and analyze your metrics, repeat purchase rate, AOV, and customer lifespan, each month to understand your growth.
Conclusion
Increasing customer lifetime value on Shopify does not hinge on one tactic alone, it is the realization and integration of local inventory visibility with customer loyalty. A potential buyer who notices a product displayed as available in a store close to them is one step closer to making a purchase. Yet, if you do not have a mechanism to not only capture their purchasing intent but also to appreciate their loyalty way beyond the point of the first purchase, you will lose them.
You are able to offer a well-rounded omnichannel customer experience that not only changes the one-time customer into the lifetime advocate but also keeps them engaged by combining Kark Shopify App, for local inventory availability, and Flits Shopify App, for loyalty and customer profiles. Begin with the simple steps: discover your CLV, get the right tools, and start a program that makes your customers feel truly appreciated. Your bottom line will reflect your efforts.
Frequently Asked Questions
1. What is a good customer lifetime value for a Shopify store?
A good CLV depends largely on the type of the business, but generally speaking, it is 3x your customer acquisition cost. For instance, if you spend $30 to attract a customer, your CLV should be $90, at the very least.
2. How often should I calculate customer lifetime value?
It is good to calculate CLV every quarter so that you can monitor the pattern and make changes to your strategies based on this. Frequent monthly checks are more suitable in case you launch promotional or loyalty campaigns regularly.
3. Can I increase CLV without a loyalty program?
Yes, you can but it will be much more challenging. Provide outstanding customer service, send customized emails, invite them for post-purchase follow-ups. A loyalty program is the fastest way as it offers returning customers a clear incentive.
4. How does local inventory affect customer lifetime value?
Local inventory visibility has a major impact on increasing purchase intentions and conversion rates. If customers are aware that a product is available locally, they not only shop immediately but, if their information is collected, the store can then market to them for repeat business.
