The race to acquire new customers and achieve positive return on ad spend (ROAS) on the first purchase can be overwhelming for e-commerce brands. Fortunately, there is a more effective method for growing your business: Lifetime Value (LTV).
LTV is like a crystal ball for your business. It helps you understand how much each customer is worth to you over their lifetime. And, some customers are worth more to your business than others. By focusing on LTV, you can make smarter decisions on where to spend your marketing budget, increase the return on investment (ROI), and scale your customer acquisition efforts.
For example, subscriptions can help you understand this. When a customer has a high LTV/retention rate, the subscription brand can afford to pay a higher cost per acquisition (CPA) to acquire that customer. Conversely, when retention is poor and churn is high among a specific audience segment, the target CPA for that segment will be reduced. The same applies to e-commerce. Brands must understand that not all customers are created equal and their repeat purchase rates and values will vary.
Once we understand repeat purchase rates combined with average order value (AOV), we can begin to optimize segment-based acquisition targets to achieve maximum efficiency. Efficiency in this case means balancing profitability and scale. When a company knows how many times a customer will buy again, they can justify spending more (or less) on acquiring that customer because they know the long-term value that customer will bring.
But, there's more! Not only can you optimize acquisition for high LTV segments, but you can also introduce different CPA targets for new vs existing customers. Acquiring new customers can be expensive, and existing customers have already proven their value to your business, so it makes sense to spend less to acquire them again. Instead, we recommend brands leverage email, organic and retention strategies to increase the LTV of their customer base, and use paid digital channels for new customer acquisition.
One of the key tools making this possible for e-commerce brands is multi-touch attribution (MTA). MTA allows e-commerce businesses to track the contribution of different marketing channels to a customer's lifetime value and optimize their marketing strategy accordingly.
In summary, Lifetime Value (LTV) is a powerful tool for modern e-commerce businesses. By understanding customer value, you can optimize your marketing efforts, allocate budget more effectively and accelerate your growth. So, if you're not already thinking about LTV, it's definitely worth considering! If you'd like to learn how Planit can support your e-commerce business transition to a LTV optimized model, please contact steve.cox@planit.co.uk or sam.douglas@planit.co.uk