Every individual consumer has their own preferences when it comes to brand loyalty, and this often varies from product to product. Some consumers are very particular about the brands that they purchase while others are always trying out new ones. Those customers that are loyal to specific brands are great to acquire as they can provide consistent sales over months and years. The relationship between a customer and business can be measured with an important metric called customer lifetime value.
What is Customer Lifetime Value?
To project the customer lifetime value (CLV) of a particular customer, you take the average value of a purchase that this customer makes and multiply that by the number of purchases that this customer makes per year. You then multiply that number by the number of years this relationship between customer and brand is expected to last.
For example, say that you make a sale to a new customer that never purchases another product from you. You profit $15 on that sale, multiplied by one (the number of purchases per year), and then multiply that by one (the number of years this relationship lasted). 15 x 1 x 1 = $15; as expected, the CLV on that one-time-only customer is valued at the profit you made on that one sale.
Now consider a customer who’s average purchase nets you a profit of $10, and they make five purchases a year. They are a loyal customer that has been buying your products for three years, and there is no reason to believe they won’t continue to do so over the next 17 years. So multiplying $10 per sale by five sales a year by 20 years, 10 x 5 x 20 = $1,000. Even though the average profit per sale is only $10, this relationship has a CLV of $1,000 due to its long-term nature.
Why Is Customer Lifetime Value Important to Your Amazon Business?
As you can see from the explanation above, customer lifetime value on Amazon is all about customer retention. Customer retention is very valuable on Amazon as it generates long-term profits and is cheaper than new customer acquisition.
Amazon sellers have to invest money, time and resources to separate themselves from the pack in Amazon’s crowded marketplace. Having previous customers give your Amazon business return business strengthens your ROI on that original investment and generates revenue at a lower cost.
An understanding of CLV and the value it can add to your business both on and off of Amazon should play a role in guiding your overall marketing and customer acquisition strategies. The better you are able to understand your customers and what works to retain them, the better you can adjust your advertising budget and marketing strategies to take advantage of this knowledge.
How Can You Increase Your Customer Lifetime Value on Amazon?
There is no one-size-fits-all method for increasing CLV on Amazon. Your brand’s product line and customer base will come with its own advantages and disadvantages when it comes to customer retention. With this in mind, here are some tips that will work for most Amazon businesses and that should get you in the right mindset to start figuring out what works for you when it comes to building up CLV.
Offer Products That Promote Customer Lifetime Value
Some product lines are more naturally geared towards CLV than others. For example, products like coffee or disposable filters naturally need to be replaced on a regular basis. If you have acquired a customer that likes your product and pricing, there is a good chance they will continue to use your product when it’s time for a replacement. Whenever possible, add SKUs to your product line that will require replenishment as this is a great way to generate return business.
Even if your brand sells products that are built to last and don’t naturally have replenishable elements, try to think outside of the box on ways to entice customers to return to your brand for more. Is there a certain cleaning product or accessory that might go well with your top seller? Are there complimentary products in your brand’s line that might work well with each other? Building bundles (including virtual bundles) could introduce your customers to some of these products and leave them wanting to come back for more.
Center Advertising Campaigns Around High-CLV Products
Amazon PPC campaigns can be used in many different ways, from keeping the sales ranking high on your top products to help them perform well among strong keyword searches to giving a product that isn’t selling too well a much-needed boost. Another great use of Amazon advertising campaigns is driving traffic to products that will promote high customer retention.
It may feel more natural for most Amazon sellers to spend their advertising budget promoting higher-profit items. After all, PPC advertising campaigns cost money, and spending that money to generate sales on a product that yields a $40 profit offers a more immediate ROI than promoting a product that yields a $15 profit. But remember the CLV equation above; even lower-profit items can create high customer lifetime value over time. And getting a customer in the door with a product that promotes higher CLV may organically lead them to get to know your brand and eventually purchase those higher-profit products anyway.
Establish Your Brand on and off of Amazon
There is a strong correlation between customer retention and brand recognition. After all, even if a customer loves your product, how likely are they to buy another product from you if they can’t remember your brand off the top of their head when they are searching Amazon for their next purchase? Here are three tools to take advantage of:
1. Amazon Brands – I’ve covered the value of being Amazon Brand registered before, and that value has continued to increase over time as Amazon keeps bolstering the program with new features and tools for Amazon sellers to take advantage of. Take full advantage of the Amazon Brand tools to promote and represent your brand on Amazon so that customers know who their product is coming from.
2. Website and Social Media – Regardless of your selling strategies off of Amazon, you should build up your brand with a presence on all of the top social media platforms (including Facebook, Twitter, Instagram and TikTok) and have a website dedicated to your brand. Some sellers that sell exclusively on Amazon (or even those that also sell on other platforms like Walmart or eBay) that don’t use a website for processing orders may feel that they don’t need one.
But even if you don’t sell products on your website, you should have one; it will add to your brand’s legitimacy, show up in search results and give customers important details about you and your business. And if you do decide to sell on your own website in the future, it will be easier to do so if you already have an established base.
3. Package Inserts – Another strategy I’ve talked about here on the blog is the power of Amazon package inserts. Coupled with the strategy mentioned above of building a presence for your brand off of Amazon, you can use package inserts (and the packaging itself) to promote this presence. As long as you follow Amazon’s TOS and don’t explicitly ask customers to use your website for future purchases, it is legal to promote it with an insert.
And that’s it! By creating and advertising products that increase customer retention and using all of the tools at your disposal to promote and build your brand, you will be well on your way to increasing the CLV of your brand’s customers on and off of Amazon.
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