The importance of a shoppers lifetime value and lifetime sales in eCommerce

These days, every large business has a reliance on CRM software (Customer Relationship Management) to some extent or another. CRM performs an important role in customer retention, so it’s almost a no-brainer to use it. When it comes to customer retention, there is a critical metric that not all eCommerce Merchants are familiar with – a shoppers Lifetime Value (LTV) and Lifetime Sales (LTS).

So for the unfamiliar, just what are LTV and LTS? Why are they important, and what do they have to do with customer retention?

  • On a site-by-site basis, a new eCommerce shopper is worth $154 in their first year.

Let’s have a look.

Lifetime Value (LTV): A value assigned to shoppers based on how much money they spend on a given website.

IE: Records show that Rebeccah purchased $2,500 worth of goods from Birkenstock.

Lifetime Sales (LTS): A value assigned to shoppers based on how many times they have completed a purchase on a given website.

IE: Records show that Rebeccah completed 10 purchases at the Birkenstock Outlet.

Now that we have defined LTV and LTS, let’s dive a little deeper into the unique applications of these metrics and why they are so fundamental to the success of every eCommerce Merchant.

The LTV metric allows us to do a number of things when it comes to customer retention.

  • Split up shoppers into unique segments based on their value to our business. For example, we can create a group for Frugal shoppers ($500) Conservative shoppers ($1,000) and High-rollers ($2,500).
  • Find anyone specific shopper based on their LTV.

The LTS metric works much in the same way as LTV, but the numbers are generally going to be much, much lower:

  • We can split up shoppers into unique segments based on the number of times they have completed a purchase on our site. For example, we can split up our shoppers into those who have completed less than 5, 10, or 20 purchases.
  • There is no limit to the parameters we can establish. So we can conceivably filter our LTS based on people who only made 2 purchases on our site, etc.

Additionally, there isn’t always a linear relationship between a shoppers LTV and LTS. In other words, just because a shopper has an LTV of $2,500, does not mean they have an LTS of 10, and vice-versa. A shopper with an LTV of $100 can have an LTS of 10.

  • The top 1% of online shoppers are spending 18 times more than all other shoppers. This aligns with the well regarded “80-20 Rule” as understood in the world of physical retail.

Because of this, it’s really important to use these two groups together when segmenting shoppers in order to create specialized offers based on the group we wish to target.

A Practical Example:

Let’s say our website sells ground coffee beans by the pound. We offer a wide variety of flavors from all around the world. Some shoppers purchase 1 pound of basic Columbian roast per month at $10 per pound. Meanwhile, other shoppers are purchasing 10 pounds of premium African roast at $30 per pound every 3 months. So on and so forth. Understanding these purchasing habits will help us determine the best value offer to provide shoppers prior to their next purchase.

So for example over 3 months, our shopper purchasing the basic Colombian roast is going to have an LTV of $30, and an LTS of 3. To keep them coming back, we could offer a discount on coffee filters with their next purchase.

Over 3 months, our shopper purchasing premium African roast is going to have an LTV of $300 with an LTS of 1. This means that although they are not completing purchases frequently, we can reasonably predict that their LTV over one year will outperform that of our shopper buying the basic Colombian roast by nearly 11 to 1 – even with a lower LTS number. To keep them coming back, we could offer them free shipping, or even a free pound of their favorite coffee with their next purchase.

In Summary:

When properly implemented, LTV and LTS will go a long way towards ensuring customer retention and continued loyalty. It also ensures that we save money on our marketing and customer acquisition efforts. Why? Well for starters, repeat shoppers lower our CPC (cost-per-click) as they will come directly to us when looking to make a purchase. By emailing them unique offers based on their value to our business, we don’t need to spend additional money targeting specific shoppers through our omnichannel campaigns, leaving us more money to spend on acquiring new shoppers in the long run.

The Datacrushers Revenue Discovery platform helps eCommerce merchants segment their shoppers through LTV and LTS every single day. Our smart mix of Artificial Intelligence and Machine Learning ensures the process is quick, hassle-free, and can be started from the day our code is integrated with your eCommerce site.

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Founded in 2015, Datacrushers uses Machine Learning and A.I. along with NLP to identify and recover revenue loss, cart abandonment and discover new revenue sources across any site.  The revenue discovery platform completes the deep ongoing analysis of eCommerce websites by monitoring the three main focal points of any site: The User, Site, and Product.

Unlike traditional “cart abandonment platforms,” Datacrushers does not require shoppers and customers to be logged-in to conduct both on and offsite campaigns. We use a wide range of data-driven and analytics based conversion tools to target the shopper at the right time with the most accurate and effective campaign to drive the sale.

Datacrushers is platform, language, and currency agnostic and requires only a few lines of code to get started therefore delivering an ultra-fast go-to-market with minimal set-up time and tech intervention.

Based out of Jerusalem, Israel, Datacrushers has clients worldwide including,  The US, China, Russia, UK, Germany, and more.

By | 2018-04-24T22:37:31+00:00 January 23rd, 2018|Cart Abandonment|Comments Off on The importance of a shoppers lifetime value and lifetime sales in eCommerce