How to Increase Customer Lifetime Value on Amazon

 

According to the late Peter Drucker, “The purpose of a business is to create and keep a customer.” Customer Lifetime Value (CLV) is a measure of that purpose, predicting the net profit attributed to the future relationship with your customer. By knowing CLV, you can make important business decisions about sales, marketing, product development, and customer support with more confidence.

Why should you consider CLV? 

Customer Lifetime Value tells you at a glance which customer segments are worth the most to your business overall. It gives you insights into your customers’ interests, which ultimately helps you understand their go-to products. With this information, you can refine existing product offerings and customer touchpoints and determine different ways to advertise your products and optimize sales to increase CLV. 

How to put your CLV to work 

Estimating your Customer Lifetime Value is a good starting point, and gives you a rough idea of your customers’ shopping behaviors. Still, you will need more detailed and granular CLV figures to build smarter and more efficient campaigns. Understanding CLV on Amazon will help you achieve and track four main sales elements:

1.Segmenting your customers

By grouping your sales data into different segments, you can figure out what calls to action, text, or triggers helped to push your best customers into buying for the first time.

Traditional approaches to segmentation focused mainly on demographic attributes such as gender or age which helped you . Understand who your customer is, but that is no longer enough. By looking at customers as personas across product categories, you can put more effort into specific aspects of your marketing. For example, knowing the demographic information and purchase patterns of customers who buy cat food (compared to dog food) lets you improve targeting for both. Whether that’s PPC ads or tailored content, that information will help you win more high-quality customers with high lifetime values.

2. Manage cost per acquisition

One of the primary uses for CLV is to help keep your Cost Per Acquisition as low as possible. The difference between your Customer Lifetime Value and your Cost Per Acquisition is your Return on Investment, or ROI. That’s the amount of money you get out of a customer relationship after you’ve deducted the money that you spent to start the relationship in the first place. To stay profitable, you need to maximize your ROI.

If you know your CLV, you’ll also be able to calculate how much you can afford to spend on paid ad campaigns. For instance, if your Customer Lifetime Value is $100 and the conversion rate for one of your marketing campaigns is 20%, your maximum bid for that campaign should be 20% of $100 = $20.

3. Cross-sell and Upsell

Amazon has attributed up to 35% of its revenue to cross-selling through its ‘Frequently Bought Together’ and ‘Customers Who Bought This Item Also Bought’ features. Cross-selling and upselling are closely related because they add further value to customers rather than limit them to products they have already considered or purchased. The key to success in both is to use CLV to understand what your customers value most and then respond with bundles, hyper-targeted ads, or individual products that meet those needs at the right time.

4. Focus on the customer

One of the most effective ways to boost Customer Lifetime Value is to increase customer satisfaction. Bain & Co. has claimed that a 5% increase in customer satisfaction can increase CLV by 25% to 95%.

Happy customers spend more — it’s that simple. Customer service and engaging with prospective customers with high CLV should always be your top priority. Amazon allows buyers to ask questions directly on the product page, which is a great way to connect with customers.

 

How to increase your CVL on Amazon 

The foremost step to increase your CLV is to understand it. By evaluating how different products perform and how product lines interact with each other, you can make sure that your resources are best placed to optimize long-term growth. In addition, while understanding customers’ needs and purchasing behaviors can help you create specific ads that will draw them to your product, the way your goods are marketed and presented on Amazon’s page is just as crucial. 

I’m going to walk you through 7 ways you can increase your CLV on Amazon:

1.Product Bundles

Very rarely are you the only seller on your listing. Often you are actively competing with other sellers to win the buy box. In similar scenarios, a winning move would be to create bundles. This not only removes the competition on the product’s page, but also presents the customer with a unique deal for not just one product, but two or more.

To determine which products from your catalog are the right ones to bundle, use the ‘Frequently Bought Together’ section on Amazon to understand what customers are buying together, and offer them their preferred combination, but in a better deal. If customers aren’t buying your products together, see what they are buying together with your product or your competitors’, and bundle similar products.

2. Subscribe and Save 

The Subscribe and Save option allows you to lock a customer into a long-term agreement that increases your repeat purchases. It can also help you save on additional costs involved. Here’s how:

• Customers opting for Subscribe and Save are less likely to switch to another brand.
• If you are a reseller, it also means that the customer is less likely to buy from another retailer. 
• Improving repeat purchases will improve average sales price, which in turn boosts your CLV.

3. Product Inserts

It’s no mystery that a customer will return to a brand that creates a unique experience for them. Packing inserts not only doubles the potential for an exceptional customer experience, but it often encourages the customer to leave reviews. Inserts also help build brand awareness and improve customer understanding of the brand and your products, and at the same time increase the chances of them feeling more connected to your brand. 

Read more on package inserts tips and ideas.

4. Effectively measure product-specific CLV

If you want to improve something, you need to measure it. Without measuring accurately, you won’t know if your efforts are focused in the right direction, and strategies that you can deploy remain limited.

To calculate your lifetime value per customer:

• Calculate your brand’s average customer lifespan.
• Determine the total number of purchases during the customer’s lifespan.
• Calculate your brand’s average order value.
• Then, multiply the average order value by the total number of expected purchases within the typical customer lifespan.

This is what your Customer Lifetime Value formula will look like:

{Avg order value} X {total number of purchases during customer lifespan} = product CLV

5. Prioritize high-CLV products with targeted ads

There are two key strategies for targeting high-CLV products. 

Target competitor keywords: Target your competitors on a brand level using Sponsored Products and Sponsored Brand Ads. This strategy works well if your products have a competitive edge regarding price, reviews, delivery, etc.  

Target high-value non-branded keywords: Use Amazon ads to target high-value non-branded keywords that help you improve organic rankings.

6. Encourage brand loyalty.  

Using Amazon’s Brand Registry features such as Amazon Stores helps create brand awareness and brand loyalty. 

Amazon Stores and Sponsored Brand Ads allow you to share your value proposition with your customer. When they click on your Brand Ads, you can take them to your store landing page or a custom landing page. You can even run ads off Amazon and redirect them to your Amazon Store. This also makes it easy to target customers with specific products that you want to sell on Amazon.

By understanding customer behavior, you will be able to estimate the interval between repeat purchases, so you can retarget your existing customers with campaigns. Amazon’s programmatic advertising makes it easy to select users based on their browsing patterns, previously viewed and purchased products, so consider retargeting to improve your CLV. 

7. Amazon Posts. 

One of the surefire ways to increase CLV on Amazon is to use the latest feature, Amazon Posts. This is still in beta, so it’s only available to US merchants who are Brand Registered on Amazon. 

Amazon Posts utilize the same marketing strategies as the ‘influencer culture’, so this is a critical opportunity for sellers. With Amazon Posts, you can curate and post product-related content, real-time lifestyle images of your product, and brand stories. The best part is they are entirely free, so make sure to take advantage of this feature. 

The benefits you get from Amazon Posts are plenty. You can:

• Promote product discovery.
• Use performance insights to empower your business and marketing decisions.
• Boost brand awareness and loyalty among target customers.

Gathering this wide range of information broadens your understanding of both customers and products. This, in turn, increases Customer Lifetime Value on Amazon. 

  

What can we do for you? 

While the goal is to run a successful Amazon business, the larger your inventory gets, the harder it becomes to oversee and manage every issue that might arise. At Bellavix, we are dedicated to helping you monitor your account, address any issues, solve any problems and make sure you’re growing in sales and ranking. We have the experience and knowledge to make your account take that next step.

If you have additional questions or want us to help you on your Amazon journey, don’t hesitate to contact the BellaVix Team.

 

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