9 Tips for Increasing eCommerce Lifetime Value

Sania Khan

Sania Khan

Published on

September 15, 2021

What is it that makes eCommerce (and retail) businesses profitable and durable? Is it just a combination of branding, marketing spend, and product quality? Or is there a "secret" ingredient that helps these brands circumvent the frightful 80% failure rate that comes with the industry?

Well, while there's no surefire way to guarantee the success of any business venture, there are some strategies that do help eCommerce stores grow into long-lasting profitable businesses. One of these strategies is increasing eCommerce lifetime value.

But what exactly is lifetime value? And how do you boost it to satisfactory levels? Well, here's everything you need to know about LTV and the top tips on how to increase it.

Lifetime Value: What It Is and Why It Matter

eCommerce lifetime value, which is often referred to as customer lifetime value (CLV), stands for the net profit a business can make by investing in its relationship with a single customer.

Essentially, the concept relies on the premise that focusing your marketing and sales efforts on existing customers offers a higher ROI than investing in customer acquisition. 

Additionally, by concentrating on LTV instead of customer acquisition, businesses can make better predictions regarding their cash flow and necessary sales strategies. Moreover, they can track customer experiences more efficiently, gaining insightful information about the aspects of their business that need improvement to guarantee growth.

How to Calculate eCommerce Lifetime Value

The formula for figuring out your average LTV is fairly simple. It goes like this:

eCommerce Lifetime Value = (Average Order Value) x (Sales Frequency) x (Average Customer Lifespan)

Of course, to get to a number, you'll have to know all of these values, so it's not a bad idea that you know how to get to them as well:

  • Average Order Value = (Total Revenue) / (Total Number of Purchases)
  • Sales Frequency = (Total Number of Purchases) / (Number of Customers)
  • Average Customer Lifespan = (Total Number of Years Customers Have Purchased) / (Number of Customers)

So, if you know that:

  • The average order value in your eCommerce store is $100
  • Sales frequency equals three purchases per year
  • The average customer lifespan is five years

You can conclude that your customer lifetime value equals $1500.

How to Increase eCommerce Lifetime Value

While there are multiple ways you could experiment with boosting LTV on your eCommerce website, there are, essentially, two highly effective ways you should focus your energy on.

On the one hand, you can attempt to increase LTV by boosting average order values, counting on consumers spending more money with you each time they purchase.

Or, you can achieve your goal by increasing order frequency, using marketing strategies that will compel your audience to shop with you more often.

Either of these two methods works well, so it doesn't matter which one you choose to go after. However, keep in mind that for the best possible results, you should be aiming to make improvements to both AOV and sales frequency.

Tips to Increase LTV via Average Order Value

1. Bundling

The first method for increasing eCommerce lifetime value through AOV is to create product bundles.

By allowing customers to save a certain percentage by buying several products together, you can simultaneously incentivize them to spend more while moving your inventory quicker and saving on shipping.

For some inspiration on how you can present product bundles, check out Steam, where game collection sets include dozens of items. What makes this method work is the clear indicator of how much the customer is saving by bundling. It ensures that buyers understand the offered value and are encouraged to spend more than planned.

Image showing the discounts on bundles
Source: steampowered.com

2. Cross-Selling

If bundles are not something you can easily pull off, you might still get excellent results by cross-selling related items to the ones your customers are browsing.

The "Goes well with" product page section on the Ikea website, for example, makes for an excellent instance of a brand successfully cross-selling to increase AOV. 

And, remember, it's not just the brand benefiting from the customer expanding their cart. In fact, the buyer is also getting a better overall experience, seeing as the extra items ensure they can get the absolute best out of their purchase.

Image showing related products on Ikea
Source: ikea.com

3. Upselling

As an alternative to cross-selling, upselling is a tactic that encourages buyers to purchase the more expensive, "premium" product. It can be anything, from a storage upgrade on a new phone to a more exclusive colorway of a piece of furniture.

But, when it comes to upselling, it's often difficult to get right. People won't always want to go for the "pro" version of a product – especially if they're not experts in the field. Therefore, in these cases, structuring the upsell as something more attainable works far better.

Bay Alarm Medical does this exceptionally well with the "Most Popular" product label on its pricing page. Combined with a CTA that invites consumers to customize their package (and speak directly to a salesperson) as well as the pre-made bundles, each of these tactics work to increase AOV and customer lifetime value.

Image showing the best price package out of two
Source: bayalarmmedical.com

4. Offering Discounts on High Volume Orders

If you're a B2B brand or an eCommerce store specializing in high volume orders, it might not be a bad idea to consider boosting AOV through offering discounts on high quantities. Just as when bundling products together, consider how much you can save on operational costs by making bigger sales vs. selling more often. 

To fully take advantage of this possibility, try to make it clear that you offer high volume order discounts. This will encourage customers to consider spending more, all the while establishing your brand as a go-to when it comes to high-value orders.

Adding an online price calculator, like the one used by Mixam, can be a great strategy for communicating these discounts. Or, if that's not something you can pull off on your website, you can use standard popup or banner notifications to inform clients about the benefits.

Image showing discounts on higher volume of orders
Source: mixam.com

5. Free Shipping Threshold

Finally, if you're looking for an absolutely foolproof way to increase AOV all the while boosting sales, consider adding a free shipping threshold to your eCommerce site. According to Invesp, orders with free shipping have a 30% higher AOV. Furthermore, 31% of consumers would join a loyalty program to qualify for free shipping.

For an excellent instance of how an eCommerce brand advertises a free shipping threshold, check out GameStop. The offer is repeated several times throughout the website, reminding users to activate it by spending more than $35.

Image showing free shipping on orders above a limit
Source: gamestop.com 

Tips to Increase LTV via Order Frequency

6. Email Marketing

As a marketing strategy with an impressively high potential ROI, email is a great tool to increase eCommerce lifetime value by boosting order frequency.

A well-executed campaign sent to the right people (through audience segmentation) can work wonders to encourage people to buy from your store more often. You could offer periodical sales. Or, you might want to time product launches to create a consistent stream of income, then send out notifications to your existing clients. You could even automate emails to send abandoned cart reminders. 

Whichever of these methods you choose is entirely up to you. But, rest assured that investing in email marketing can and will contribute to increasing customer lifetime value. And at an affordable cost.

7. Create Subscription Offers

A genius way to increase order frequency is to make purchasing from your eCommerce website easy and convenient. And what better to achieve that than to offer subscriptions to your customers?

By allowing people to set up recurring orders for products they're bound to run out of, you're not just making their lives easier. But, you're actively working to prevent them from going to your competition, all the while creating a steady cash flow for your business.

For a great example of how you can market this type of offer on your eCommerce website, check out the Wild sign-up page. Here, the sales pitch clearly prioritizes the subscription model, explaining that it's flexible, budget-friendly, and comes with exclusive benefits.

Image showing discounts on subscriptions
Source: wearewild.com

8. Loyalty Programs

If you're ready to maximize the chances of your business making it in the long term, developing a loyalty program might just be the answer. 

Showing your customers that you appreciate their business is an excellent way to build a bond, but it can also give you excellent new ways of increasing order frequency. For example, if you offer a certain number of points (or cash-back) with every purchase, you can encourage consumers to opt for your eCommerce store even when it might not have been their number one choice.

Sephora's Beauty Insider program, for example, has three membership tiers. The benefits (free shipping, seasonal savings, etc.) are determined by how much the customer has spent, with the higher tiers requiring $350 and $1000 investments. It's a great model, as it doesn't force users to spend all that money at once. Instead, it adds gamification to the shopping process, giving customers a goal to work up to.

Image showing discounts for loyalty programs
Source: sephora.com

9. Retargeting

Another super effective way to increase eCommerce lifetime value via order frequency is to employ retargeting techniques to encourage shoppers to make another purchase from you.

So, for example, if a person recently purchased an item and your offer includes a product that could complement that item, then retargeting may be the perfect way to get them to shop with you again.

If you take a look at this "Welcome to your new MacBook" email from Apple, you'll see that it includes a number of resources for new users, as well as several links that encourage users to browse apps and accessories for their new device.

Image showing products that are a good match with your latest purchase


Wrapping up

As you can see, there are excellent methods for increasing eCommerce lifetime value, either by addressing AOV or purchase frequency. 

But, while these tactics are sure to yield results, it's essential that you don't forget about the basic elements that contribute to high customer lifetime value. These include:

  • Outstanding customer service
  • Attention-grabbing & functional website design and UX
  • A focused branding strategy that prioritizes customer experience 

If you manage to meet all of these criteria, you're on a great path to success. But, if you feel like something is still off, now might be the time to address the issue. Create space for your eCommerce business to grow.


Author Bio

Sania Khan

Sania Khan is a content creator who has been writing for the past seven years. A content marketer by day and a poet by night, she previously worked for a large multinational and left it to pursue her passion for writing. She enjoys a good read with wit and tea to get her day started.

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