How do you measure your online store’s success?

Do you typically focus on things like sales and revenue?

While these metrics are useful for tracking the short-term performance of content and campaigns, they don’t always paint a complete picture of your business’ future. Even looking at your current sales numbers can sometimes leave you with just a fleeting glimpse of your true financial situation.

Customer lifetime value (CLV) is one of the most important factors in determining your business’ present and future success. It’s an often-overlooked metric that can accurately predict how much your customers are really worth. 

By measuring the net profit that you’ll take in over the course of your entire relationship with a customer, you’ll be able to narrow down exactly how valuable they are to your business.

Why is customer lifetime value important?

CLV gives you crucial insight into how much money you should be spending on acquiring your customers by telling you how much value they’ll bring to your business in the long run. 

Rather than just racing to keep your head above water, you’ll be able to understand which customers you should be focusing on and, more importantly, why you should be focusing on them.Customer lifetime value is a clear look at the benefit of acquiring and keeping any given customer. Not all customers are created equal. 

Understanding your CLV has three main benefits:

• It drives repeat sales and revenue. CLV uncovers the customers that spend more in your store. It helps you understand what products they enjoy and what products improve their lives. You can use CLV to track the number of sales per customer and strategize ways to increase repeat purchases and profit margins. A 5% increase in customer retention can lift revenue by up to 95%.

• It boosts loyalty. The tactics you use to increase CLV can improve customer support, products, referrals, and loyalty programs, which leads to more repeat customers and a higher retention rate. Retained customers buy more often and spend more than newer ones. 

• It reduces your lifetime value (LTV) to customer acquisition costs (CAC) ratio. Our research shows that average customer acquisition costs between $127 and $462, depending on your industry. A good LTV/CAC ratio is 3:1, which signals the efficiency of your sales and marketing. By improving your customer lifetime value, you can benchmark how marketing impacts customer profitability.