LTV or your CLTV (Customer Lifetime Value) is the most important metric for any eCommerce business. The reason for this is that it gives a good indication of a brand’s current and future health.
Internally we always say that the repeat customer rate (which is of course a big part of the customer lifetime value) tells us everything about the health of a business.
LTV not only tells us how many people are buying, but how many are making multiple purchases. By knowing this, it’s possible to re-engage them with loyalty programs or upsells. Loyal customers are the lifeblood of any business and LTV is the metric telling us how many one has.
⭐ What is a healthy LTV?
The aim is to have a repeat customer rate of 25% and above. The more collections or product launches you have, the higher the repeat rate typically is. Some fashion businesses have lower rates because of the type of products they sell (expensive handbags/shoes for example) but typically 25% is a good number to aim for.
However, if you’re far below 25% there is typically something going on with your business overall.
- People are not getting what they ‘expected to get’
- Sizing is off
- Product Quality is not as expected
- Shipping takes long
- It’s not easy to return products
All of these points influence the repeat rate and indicate that a change in strategy is needed. The data doesn’t lie. On the other hand, if you have a strong repeat rate (25%+) and with that a good (C)LTV – you have a healthy business.
⭐ What is the importance of understanding lifetime value and RCR (Repeat Customer Rate)?
With rising costs to acquire a customer the real money is made on the back-end. By back-end, we mean retention marketing services such as email and SMS. We use email and SMS to re-engage our current customers and convert them multiple times. This is done through post purchase flows and weekly campaigns showcasing offers, value-adds and other products around the store.
CPMs are also going up – so it truly is now more than ever, the person that can spend most to acquire a customer wins. Especially if that customer wants to purchase again and again. If you understand the RCR and CLTV of your business you know what you can spend to acquire a customer.
In the agency, we use something call aMER or acquisition MER which shows how much you’re spending on ads (across all platforms) and how much new customer revenue you are getting in. That way you know if you’re at least breaking even (if that’s your aim) on acquiring customers. The better your CLTV – the more you can decide to spend on acquiring a customer.
In conclusion, LTV is the most important metric because it shows you that what you’re selling is popular. If people aren’t buying your products multiple times, then it’s difficult to know what works. LTV is also a good indicator of best sellers and helps you choose your own key product lines.
Finally, LTV shows that you have loyal customers willing to purchase throughout the year. Fantastic, especially when the big sales over Black Friday and Christmas come in.