The 3 Biggest Factors You’re Not Considering in Customer Lifetime Value
November 26th, 2008 by Doug BrightCustomer Lifetime Value is the most critical metric in determining how healthy your customer file is. Why, then, does traditional CLV analysis perform so poorly for online retailers?
Consider two customers: The first bought an item for $40 two years ago and hasn’t returned to the site since. The second has not yet bought anything but visits the website every day and eagerly clicks on marketing emails. Traditional CLV, which relies purely on past purchase behavior, says customer 1 is worth more than customer 2 but that’s unlikely to actually be the case.
To get an accurate picture of a customer’s value, you should consider incorporating these metrics into your CLV calculation:
- Shopping cart abandonment. How much more likely is a customer to spend with you in the future each time they add an item to their shopping cart before abandoning? How does that translate into customer value?
- Email response rate. Are users who eagerly click on your marketing emails more valuable than those who delete them instantly? Almost certainly, but by how much?
- Website activity. I habitually check woot.com every morning but have only ever bought one $10 item from them. Am I worth more to them than somebody who spent $10 but never visits the website? Of course I am, but you wouldn’t know it from a traditional CLV analysis.
Tags: clv, Customer Lifetime Value (CLV), lifetime value, ltv
Add Personalized Product Recommendations to Your eCommerce Site
Istobe is a powerful recommendation engine that makes it easy to add recommendations to your eCommerce site. How powerful? Shoppers who click on Istobe recommendations spend 20-50% more than the average visitor.
