How to win and keep high LTV customers

7 min read

Acquiring New Customers Can Be Expensive

It's easy to intuitively understand why repeat customers spend more money. Similarly, we all can think of brands that we enjoy so much that we've recommended them to others. But the statement we made earlier that "you don't have to spend money getting them to buy for the first time" warrants further explanation.

There is an important term called customer acquisition cost. You often see it abbreviated as CAC. You calculate CAC by dividing all costs spent on acquiring new customers by the number of new customers acquired.

If your customer acquisition rate is too high, your business can end up folding.

Where are you spending off-site budget and resources?

A lot of companies put a hefty amount of budget into ads. What’s mind-blowing about the ad spend and marketing strategy is that for every $92 spent acquiring customers, only $1 is spent converting them.

For example, when you create an ad on Facebook offering $10 off a purchase for the next 48 hours and a visitor clicks the ad, he/she should see that same $10 off messaging on your website as well as a reminder of when that offer ends.

By leveraging UTM parameters from your ad campaigns on channels like Facebook, AdWords, affiliates or Instagram, you can trigger pop-ups or message bars to display when those click-thrus arrive on-site.

The bottom-line: squeeze more ROI out of the money you’re already spending. On-site messaging is quick and easy to set up and is often the only nudge your website visitor needs to become a customer.

What is a New Customer Really Worth?

Of course, taken alone, CAC is not a meaningful metric. If you spend 100€ to acquire a new customer, but you make 10,000€ in revenue for each one, then you've practically created a money factory. Similarly, if you spend 100€ to acquire a new customer, but you make a paltry 50€ in revenue for each one, then you probably should rethink your strategy.

Enter life-time value. Also known as LTV, the simplest way to calculate this is to take the cost of customer revenue minus the expenses incurred by acquiring new customers. Then, divide that by the number of customers you have.

The ideal LTV:CAC ratio is 3:1. For every dollar you spent acquiring customers, you need to be making $3 back in revenue.

Overview - The retention stage

The retention stage is arguably an even more important staging than the customer acquisition stage described in the previous article, even though most companies are spending considerably less time on it.

The reason we are making this argument is because scaling up your retention impacts your bottom line much more significantly than scaling up your new customer acquisition efforts.

This efficiency stems from the fact that most of the instruments you use in this stage, such as email marketing, referral platforms, retargeting ads, are significantly more cost efficient than sending massive prospecting ads to get your initial customers through the door.

Furthermore, there is a hidden “customer referral” factor that we also need to consider in this stage, which drives more new, highly qualified customers through the door at almost no additional cost.

Creating high-LTV customers

High-LTV customers means “high lifetime value” customers.

You can’t achieve high-LTV immediately. It is a “crawl, walk, run” process. But as soon as you start dialing-in your segmentation strategy, you can be more aggressive in pursuing tactics to nurture these customers.

Here are the must-have elements needed to create high-LTV customers:

  • Traffic coming to your Website (organic, paid, or both)
  • A lead capture solution
  • health scoring and lifecycle management software
  • Segmentation within your CDP

Here are a few basic tactics you can implement into your marketing strategy to create repeat customers:

  • New visitor discounts
  • Cart abandonment offers
  • Tiered offer discounts
  • Cross-sell/upsell campaigns to increase AOV

Building a 1:1 Customer lifetime loop can start simple. In fact, that’s the best way to begin. Set up your simple loop today, learn more about your customers, and what you can do on your next loop iteration.

How to Improve Your Customer Lifetime Value (LTV)

With our KPIs ready, it’s time to work on our customer value maximization. But, what is a good profit margin? What is a good purchase frequency? (Don’t forget, a good retail profit margin wouldn’t necessarily be a good food services profit margin).

Compare your KPIs with industry benchmarks to determine which KPI needs the most improvement. Find current averages for your specific industry, then get to work. Which one could improve customer value the most? Remember to focus on your weakest KPI first in order to maximize profit.

How to Improve Your Average Order Value (AOV)

Having trouble getting your customers to increase their spending? Try these campaigns, which focus on providing incentives to increase average order value.

  • Add personalized product recommendations to the site; the recommended products should be based on the ideal price point for each individual customer, thereby maximizing revenue.
  • Send personalized newsletter campaigns with dynamic product recommendations optimized for price.
  • Trigger product recommendations, based on what they’ve added to their shopping cart, directly on the site.
  • Send an email campaign with product recommendations based on what they’ve added to their shopping cart.
  • Create product bundles that offer a discount for making a larger purchase. Bundle products that can be used together, and recommend the bundle directly on the site, or through email, based off the user’s browsing and shopping cart history.
  • Create a customer loyalty program, incentivizing spending by adding loyalty points that customers can use for discounts and freebies.

Upsell and cross-sell

Upselling and cross-selling are two great ways to increase your customers’ lifetime value. Instead of spending all your time trying to make one sale to more customers, these techniques focus on generating more sales per customer.

Upselling refers to the practice of offering your customer a more expensive version of a product or getting them to add features or warranties related to it.

Cross-selling is similar but involves selling your customer products or services from other categories to enhance the one in question.

1. Focus on building meaningful relationships with your customers.

In order to turn one-time shoppers into lifetime buyers, your business needs to be adept at building meaningful relationships. The internet makes it incredibly easy for people to purchase an item one time, leave the website, and never come back. You need either a way to contact your customers after their purchase or a way to personalize the experience to where it feels so well-suited for your new customer that they remember your name.

Train your employees. Focus on delivering great customer service. Remember your customers' names. These details go a long way.

2. Perfect the customer experience.

There is a great field of study known as customer experience (CX). It's a complex field of study, but the basic principles are easy to grasp. Make sure your website is easy-to-use and not buggy. Make sure customers are able to easily get a hold of your staff if they have a problem.

3. Tell a cohesive brand story.

If customers don't remember who you are, they will not return to buy more. That's where branding becomes incredibly important. In the words of RetailNext, "all buyers want to purchase from brands that share their core values and world views." Work hard on content that tells the story of your brand in a memorable way to help create a lasting impression in your customer’s heads.

4. Engage in content marketing to keep customers coming back.

Content marketing is a well-known way to acquire first-time customers. You can create content in the form of blog posts, videos, podcasts, or social media posts. This is because content marketing provides an effective way to brand your business, which itself is beneficial to customer retention. It also provides value to your existing customers, particularly the ones who already know about your brand.

5. Request product reviews.

Asking for customer reviews can help with customer retention in two ways. First, it allows you to see what they are not enjoying so you can correct it. Second, if they have positive things to say about your company, being asked to write a review will remind them of everything that you've done right!

6. Invite your customers to answer questions about the product.

Conducting surveys and asking questions are great ways to learn about what your customers like and dislike about your products. Product reviews give similar insight into what you can improve on, but it doesn't stop there. The mere act of asking customers to answer your questions reminds them you exist and shows them that you care about improving your products. Both can positively impact customer retention.