Online retailers know this: especially in difficult phases of the business, the focus is rather on fast money: rapid growth in sales, fast profits, rapid growth regarding the number of new customers. The problem: a sustainable business strategy is thus neglected. But if one wants to be successful tomorrow, one has to put one’s customers into the focus of one’s efforts today. Entrepreneurs who think sustainably therefore do not only look at the conversion rate and the cost-per-order (the ratio which represents the cost of a conversion), but also keep an eye on the Customer Lifetime Value (CLV), which represents the value of all future conversions of a customer.
But what is the Customer Lifetime Value, and how is it calculated?
The Customer Lifetime Value (abbreviated: CLV) is the value that a customer represents for a company over the entire time of them being a customer. The CLV includes all monetary transactions (also: Customer Profitability; in short: CP) that the customer has already brought to the company, as well as those that are potentially generated in the future.” This is how OnPageWiki defines the term. In other words, the “Customer Lifetime Value” is what online retailers call the value of a customer during their entire business relationship. For the calculation, the time span of the customer relationship (t) is important, from which an average required rate of return (i) for this customer is calculated (the longer the customer is a customer, the more they can buy), the prospective earnings value (et), i.e. the amount they are willing to leave in the merchant's shop) as well as the costs for the merchant to keep this special customer, to retain them and to encourage further purchases (at). Let us have a look at a concrete example:
The duration of the customer relationship to your fashion online shop is 10 years, the required rate of return (i) 10%, therefore 0.1. During this time, your customer buys every two years for 400 dollars (et). Your company invests 50 dollars (at) annually for the care of a single customer. The values for et and at are designed for the entire period of the customer relationship, i.e. for et: 5 * 400 dollars = 2,000 dollars; for at: 10 * 50 dollars = 500 dollars.
The CLV formula is therefore:
CLV= (2000 – 500 / (1 + 0,1)*10) = 148.51 dollars (per year).
The formula quickly shows: the longer a customer remains loyal to an e-commerce company, the more valuable they becomes for the merchant. If the customer from our example were to buy at the fashion shop for only two years longer, his Customer Lifetime Value would already increase to more than 160 dollars.
How smart package inserts from Adnymics sustainably increase the CLV
It is therefore worthwhile to invest in one’s existing customers to increase their CLV. Refined after-sales services offer a particularly good opportunity to address the existing customers. These provide the customer the perfect "unpacking experience".
Personalized package inserts that retroactively support the customer’s purchase decision with individual customer content - such as guides, recipes, tips, application examples, furnishing suggestions etc. - are a good way to address customers directly in the package and to tie them to the shop. Such a personalized brochure can also provide specific incentive for another quick purchase: through personalized product presentations or vouchers. That such package inserts can significantly reduce the repurchase cycles is also confirmed by our customer Shoepassion. Lastly, package inserts offer shops a cost-effective way to anchor their own brand more firmly in the customer's mind. The experiences of our customers show what a positive effect individual package inserts have on the CLV. The children’s fashion distributor tausendkind, for example, reports significantly better conversion rates and 15% higher shopping carts as well as a longer dwell time in the shop.You see: Package inserts can do much more than you might think!