What is the lifetime value of your customers – and how to improve it

Running a successful business is a marathon, not a sprint. 

When it comes to your customers, it’s really important to understand the difference between a quick win and a long term game plan. And why online store owners need both. 

The first thing we need to understand is how much a customer is worth to your online store. 

This is the lifetime value of a customer. 

We work this out by multiplying the average order value with the average purchase frequency. 

Average order value is the average amount people spend with you in each transaction. 

Average purchase frequency is the average amount of times they purchase something from your store. 

Of course, some customers will be worth a lot more and some a lot less. And this is where the marathon vs sprint analogy comes into play. 

If you focus on quick wins and only focus on how many sales you made that day, week or month, you could end up attracting a bunch of low-value customers. 

If you focus on the long game, you focus on getting loyal customers who have a higher lifetime value. 

Getting new customers

Once you know your lifetime value of a customer you can start to think more holistically about getting a new customer to your store. 

You can also work out how much you can afford to spend to acquire that new customer. As a rule of thumb, it’s usually about 5-10% of the lifetime value of your customer.

Sometimes 5-10% is almost all of the first sale and this might sound ridiculous to you. However, when we understand that business is a marathon and we are in it for the long term we know it’s worth it for the lifetime value of that customer. 

Increasing the average lifetime value of your customers

As well as acquiring new customers we also want to focus on repeat purchases and loyal customers. Selling to an existing customer is much easier, quicker and cheaper than acquiring a new customer. 

And by focussing on our existing customers and increasing the amount and frequency in which they spend, we can also increase the lifetime value of a customer. This will then give you more to play with to acquire a new customer. And the cycle continues. 

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About Karyn Parkinson

Karyn (“with a Y!”) is an eCommerce marketing specialist with a knack for high-converting Facebook ad funnels and website optimisation. Through her eCommerce marketing agency and on-the-pulse training programs, Karyn’s helped hundreds of eCommerce store owners across the globe boost profits, generate more revenue, and achieve an ad-spend ROI of their dreams.