Your month-on-month sales are growing, and you reached your target ACoS, but you struggle to grow your profits. Sounds familiar? Read on to find out how to increase your profitability with Customer Lifetime Value on Amazon.
In this article, we help you understand why customer lifetime value is important for your Amazon business and how you can increase your customer retention on Amazon.
Customer Lifetime Value (CLV), also known as lifetime value (LTV), tells the total revenue the customer is expected to generate throughout the business relationship.
If you want to maximize your profits and grow your business long-term, you need to grow your customer base and retain them. To increase profitability, we generally take two routes:
Customer retention is a cheaper way to grow your profits. By retaining customers and increasing customer lifetime value, the business turns profitable in the long run. Understanding CLV is essential for a brand to identify challenges ad opportunities.
Recommended Guide: The Power of Branding on Amazon.
Calculating CLV across your sales channels is not easy. It can be tricky to figure out your CLV on Amazon since they don’t give most customer information. Still, there are a few things you can do to improve your lifetime value on Amazon.
CLV is a business growth metric that all Amazon business owners should consider. Understanding this metric will help you to get insights into customer interests. Learning about your customer interests, understanding what products they are after will help you refine your existing products and customer touchpoints. Eventually, you can determine the right way to optimize your advertising and retargeting strategies on and off Amazon. So your Amazon business should definitely aim at good CLV.
As mentioned, customer retention is cheaper than acquisition. Moreover, retaining customers means generating long-term profits.
Understanding CLV helps you focus on your customer and come up with a full-funnel approach. With this, you also make better use of Amazon ad reports and other data insights. Besides, you can segment your customers based on your total revenue. This helps you come up with tailor-made marketing strategies and ad campaigns for your target customers.
Additional Read: A Step-by-Step Guide to Full Funnel Amazon Advertising.
Now, let’s look at the ways to improve your Customer Lifetime Value on Amazon.
Customer Lifetime Value comes down to understanding ‘buying patterns.’ You need to use data to understand the likelihood of a repeat purchase. To get accurate predictions, gather relevant data collected over a long time. This is helpful to target ads and maximize your CLV.
By bundling products together that complement each other, you will be the only seller with a standalone listing. That means zero competition for the buy box.
Customers will pay more for the convenience they get from the bundled items. When grouped properly, selling amazon product bundles can be more profitable than selling individual products. That’s because you can set your own price without worrying about competition.
How do you find the right products to bundle? Use the ‘frequently bought together‘ section to find products that sell with your existing products. Using these insights, you can create bundles that save money and clicks for your customer. This, in turn, increases your average order value (AOV) and CLV.
Amazon’s subscription service is quite popular. They may charge between 5%-15% for the privilege, but it saves on the costs of acquiring new customers on subsequent purchases.
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. Let’s see how it works.
Packaging inserts have the potential to create exceptional customer experiences.
A product insert is a great way to remind customers to leave reviews. However, you can also improve your product inserts to remind your customers that you sell a variety of products. You can encourage them to browse through your Amazon store.
It’s against Amazon’s Terms of Service (TOS) to use inserts for encouraging customers to repurchase from your website. So ensure your messaging remains within Amazon’s TOS.
If you want to improve something, you need to measure it. Without measuring accurately, you won’t know if your efforts are in the right direction. It further limits the strategies that you can deploy.
Mastering product-level insights are crucial to calculating CLV accurately. Go beyond rough estimates, and dive into product-level data. Sometimes, the advertising reports you get on Amazon may not be sufficient to understand how your products are performing. At SellerApp, this is something we help our clients and brands with. Our Sales and Advertising tools offer product-level insights, so it’s easy to analyze true profits.
For instance, SellerApp’s Product Analysis feature in their Advertising suite will help you understand how your products perform at the campaign, ad group, and SKU levels. This allows you to find low-performing products within your campaigns to optimize your campaign structure and ad spending accordingly. You can log in to SellerApp or contact our experts if you want to analyze your product performance right away.
Now that you are aware of product-specific CLV, you get an overview of the valued products over the long run. These products:
These are your star products, so target them with your ads to increase your overall CLV. Winning better ad placements for these products will also grow your organic traffic. Also, targeting high CLV products may open the door to aggressive bidding to grow your CLV over time. Additionally, it also boosts the overall profitability of your brand.
There are two key strategies for targeting these high-CLV items.
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 in terms of price, reviews, or delivery, etc.
Target high-value non-branded keywords: Use Amazon ads to target high-value non-branded keywords that help you improve organic rankings.
If you want to learn more about targeting your competition on Amazon, check out this video. In this video, we give you the top 3 ways to target your competitors using sponsored ads.
Fundamentally, CLV measures brand loyalty. Amazon provides diverse options to grow your brand on the platform. So leverage the opportunities at your disposal to increase your CLV.
Here are a few of them.
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 target users based on their browsing patterns, previously viewed and purchased products. So consider retargeting to improve your CLV.
At some point, you should consider this – shoppers on Amazon are Amazon’s customers, not yours. So it’s good to build traction outside Amazon. You can start with social media channels like Facebook, Instagram, etc. Develop your own website and carefully start funneling your customers. Having your own customer data and communicating to them will improve your branding, which in turn, boosts your CLV.
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 is 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.
Gathering this wide range of information broadens your understanding of both customers and products. This, in turn, increases Customer Lifetime Value on Amazon.
Lifetime Value is the customer value multiplied by the average lifespan of the customer.
Here, Customer Value = Average Purchase Value * Average Number of Purchases
You can use this information to target retention from certain products or categories.
In terms of profit, Companies determine customer lifetime value using the actual amount spent by customers. This is done by understanding the average margin on products and adjusting the total orders. So it provides a more accurate lifetime value in relation to profits.
So we can say,
At SellerApp, we combine Amazon expertise with cutting-edge technology to help our clients get long-term profits and high CLV. Ditch your spreadsheets, get straight into insights, take action, and track your performance with SellerApp. Drop us an email at firstname.lastname@example.org to get in touch with our experts.
Calculating customer lifetime value is critical for your e-commerce business. Though it seems like a lot of hard work, it is worth it in the end. Once you understand CLV, it is easier to find opportunities to improve your product and business.