Keys to understanding customer value online

Dumber or smarter

Taking two extremes, if you are selling sofas on your ecommerce website, you won’t see frequent repeat buys, while if you are selling groceries there is hugely more potential over time.

That’s why it’s important to understand where your business sits on the continuum between these extremes, as it should be a major driver of your marketing activities. It makes a big difference to the amount of effort you put into encouraging customers to buy again.

It may also have a dramatic impact on which potential customers you target and how much you can afford to pay for acquisition. And if you could expect customers to come back to buy again, you should devote significant marketing effort to make this happen, including email campaigns to reactivate customers that haven’t bought in a while.

Customer lifetime value

The concept of ‘customer lifetime value’ (CLV) means that when evaluating the return on marketing spend, you don’t just look at how much a customer spends when they first order from you. Rather, you calculate the total amount they will spend on average before they stop buying from you. You do this by measuring what has happened with the customers that you already have. I won’t define the concept of CLV further here, as there is plenty of material elsewhere, for instance at http://en.wikipedia.org/wiki/Customer_lifetime_value.

One thing to think about is that customer behaviour can vary depending on how you acquired them.

As an example, the lifetime value of someone who came through an affiliate network may be different from someone who found you through Google. The value of a customer who searched for “good quality” may be dramatically different from one who searched with keywords including “cheap”. The latter might be much less loyal, but you don’t know, so it’s important to measure by looking at CLV by the acquisition source.

Measure and measure more

Successful online marketing involves understanding how effective each activity is in terms of costs and business results, then adjusting spending to target the most effective approach.

The key to blazing success in ecommerce is to measure as much as you can, then take action based on those measurements. Looking at CLV can help you gauge the return and benefits of spending on re-activating old customers, as well as fully evaluating customer acquisition spend.

Put simply, if you don’t do this and your competitors do, it’s like you relying on eyesight while they have radar.


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Chris Barling

Chris Barling co-founded ecommerce software supplier, SellerDeck (formerly Actinic Software) in 1996. He has over 30 years’ experience at the corporate end of the IT industry. He is a prolific writer for a large range of small business media and has also published three books on ecommerce.
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Chris Barling co-founded ecommerce software supplier, SellerDeck (formerly Actinic Software) in 1996. He has over 30 years’ experience at the corporate end of the IT industry. He is a prolific writer for a large range of small business media and has also published three books on ecommerce.