How to Increase Customer
Lifetime Value on Amazon
This webinar discusses the top five things brands must do to increase their customer lifetime value on Amazon. Topics include understanding unit economics, ways of increasing profitability, identifying customer acquisition targets, targeting customers who have purchased from you after they run out of the product, and leveraging Amazon programs to cross-sell and upsell.
Bring to you all the research knowledge that I have. So today we are talking about how to increase your customer lifetime value. And what we will be looking at is I’ll just pull up the agenda. Here you go. So, what is the customer lifetime value on Amazon? The limitations to traditional CLV metrics. And we’ll also look at the better ways of calculating your CLV that could help you, you know, increase your CLV. And then how to increase your customer lifetime value, whereas promised, I will give you the top five ways with which you can increase your customer lifetime value.
And for those who stay till the end, we have some bonus tips. So, let’s just get started. What is the customer lifetime value on Amazon? So, before I kind of define things, tell me if this sounds familiar to you, your growing Amazon sales month on month, and you have achieved your target ACoS, but you’re struggling to increase the overall profitability. It’s a common [inaudible], right, so much emphasis and public advice.
It’s a common to put so much emphasis and public advice, concentrated on ACoS and the core metric that everyone should be optimizing for. While that’s great for top line revenue. It’s not the best way to increase your Amazon profits, right? That might seem counterintuitive at the first glance to most people, but shaving small percentages from a cost is actually only shaving an even smaller percentage from your overall cost of selling on Amazon to truly accelerate the profitability.
You need to make more money for each customer that you’re selling to, right? And that’s exactly where optimizing your customer lifetime value comes into play. And that’s exactly what we’ll try to look at today. And by the end of this webinar, you’ll have the five ways, including the bonus tips that you could leverage to improve your CLV or customer lifetime value. But before getting there, let’s just define what customer lifetime value actually is.
CLV is the worth of customers over the duration that they purchase from you. In its most basic form, it is basically the average amount of revenue you make per customer. Now, when we talk in the context of Amazon, most costs are fixed costs, and we know that. For example, your costs are your cost of goods sold. Your FBA or your delivery fees to the customers, if you’re using SFP or FPM or Amazon referral fees, for instance. And on top of it, if you’re advertising on Amazon, that costs, you know, roughly 10 to 20%, of course, it will vary widely from one seller to another, but this point still stands in most circumstances of the sales generated from ads.
Ads might make up to 20% of your overall sales. This is why I say that reducing a cost by a few percentage points only has a marginal impact on profitability. So, with little control over your cost, extra profits can only come from generating more revenue for each customer. Now, the most experienced seller understands this. With FBA costs only rising and advertising costs going in the same direction, Optimizing CLV is now more important than ever before.
And this is really important to look at because we want to figure out what our customer acquisition costs are, how it works within our unit accounts. But essentially lifetime value is kind of broken into two metrics here. And that’s the average auto value multiplied by the average purchase frequency rate. So, for example, if you are in the razor blade industry, it is very, you know, Gillette and Amazon basic brands, and there are a lot of types of brands out there selling their razor blades for relatively inexpensive pricing.
Now with the kind and their listings, they have like three razors because it’s easy to get into that market and then they continue to sell you the razor blades. So, there’s a strong average frequency purchase rate, which drives up the lifetime value of the customer. Another very important point to consider here is to remember that every brand or seller will use LTV differently, depending on where they place their emphasis. Some will focus more on average order value, while the others will place greater importance on average purchase frequency
Ultimately as a business owner, you’ll have to figure out what’s best for you. Now to give you some context of what I’m saying, if you are basing your LTV on average order value, you’ll be looking at typically time purchase. Amazon is filled with small catalog brands that would focus on this metric, right? And if you’re basing your LTV on average purchase frequency, you’d look at typical customers, customer purchases that are made more than once. And these orders would include, for instance, supplements and razors and food items, etc. And that’s exactly the kind of category that we’re talking about today.
Now, to move ahead in the next step, what’s more important is to calculate your CLV. And before that, we look at the traditional method of CLV and the traditional metrics of CLV, and you’ll see the limitations, and then you’ll see how we can move ahead from there. Now, the traditional way to measure CLV is to take the expected average auto value multiplied by the expected purchase frequency per year, multiplied by the number of years you expect a customer to remain a customer.
Now, the major challenges with CLV are due to the timeframe. Why? Because in practice CLV carries a number of challenges for eCommerce stores looking to use it as a KPI. Following the points that you can see on the screen, like the lack of quality data. Firstly, to properly the inputs to CLV such as how long to expect them as a customer and how often they purchase. You need an accurate data set. This makes CLV hard for newer stores that don’t have years of behavioral data. Second changing data.
Your basic tactics, you know, your offers, your conversion, your optimization, your product makes, all of it changes year after year. So in regards to CLV, the previous cohorts become less and less useful adding to the lack of quality of data problems. The third one is risk because CLV assumes that your projections are accurately underlying assumptions won’t change. However, the pace of change continues to accelerate along with consumer behavior. And the further out we project, the higher, the risk you carry.
The last one is flow concern because the lifetime value doesn’t account for cash flow consideration. Cash flow is often a prerequisite to fuel your growth. And the full CLV value cannot be realized without a sustainable business model, of course. Now, what is the solution to this? The solution is basically to shorten the time frame and shift away from lifetime and instant focus on the shorter payback periods. Now payback period analysis is more practical and still allows for longer cancellations.
Simply put, the payback period refers to the amount of time it takes for a customer to generate enough profit to cover the cost acquisition. For eCommerce stores CAC or cost of acquisition is a constant factor. And as we know on conversion rate optimization, a CAC. The CAC is rising across industries. So, limiting CLV to a shorter time frame makes the metric more actionable. Changes in making personalized offers or triggered email campaigns or any other tactics you use can be evaluated in true AB testing fashion, in that manner.
And instead of measuring customer lifetime value in one metric, if you break it down into various periods, depending on the product in the industry’s specific purchase cycle, for example many consumer products you know, the cycle would depend from 30 to 60 or 90 days of cycle. Now that we know how we want to calculate our CLV, let’s go on how you can increase your CLV. And the first way to increase your CLV is by using targeting ads to promote the high CLV products.
Now, what you want to do is you want to go product specific. So, when you grasp the product specific CLV, you get a picture of the product that is most valuable over a long time. And this includes products that one, lead to repeat purchases of that single product, and second, act as a gateway product that leads customers to purchase a wide range of products from your portfolio. Either over a short or a long term. By targeting both of these types of products with PBC ads, you will increase your overall CLV.
And winning PPC placements for these products will also help grow organic traffic for these listings because of the positive feedback, that high converting PBC placements have on organic tracking. Now targeting high CLV products is also critical in terms of steps for using CLV effectively and can open the doors to more aggressive bidding in order to advance other PBC goals. However, solely from the perspective of increasing the CLV, by targeting these products, you will grow CLV over time, which will help improve the overall profitability of your brand.
Now, two main strategies that you could imply for targeting high CLV products include, the first one is targeting competitor terms. So, target your competitors on a brand level using sponsored products and sponsored brand ads. This is particularly a good idea if your products are cheaper and have better reviews of faster delivery times than your competition. And the second one is targeting non-brand keywords. So, the competitor targeting is important, but so is targeting high value, non-branded terms.
Again, this is the targeting that can also help you drive organic traffic using PBC. Let’s move to the, to the next tip that is boosting brand loyalty. Now fundamentally CLV measures brand loyalty. Amazon provides diverse options to grow your brand on the platform. So, the best is to leverage the opportunities at your disposal to increase your CLV. I’ve made sure to mention two of them, the first one being Amazon stores. Amazon stores, and also, we can include sponsor brand ads. They together allow you to share your value proposition with your customer.
So, when they click on your brand ads, you can take them to your store landing page or a custom landing page, and you can even run ads off of 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. Now, the second one is retargeting with ads. By understanding customers behavior, you will be able to estimate the interval between the repeat purchases. So, you can retarget your existing customers with campaigns.
Amazon’s programmatic advertising makes it very easy to target users based on their browsing patterns previously viewed and purchased products. So, consider retargeting definitely to improve your CLV. Sorry about that. Let’s look at the next method, which is Amazon posts. Now, this is one of the sure-fire ways to increase CLV on Amazon. And you should use Amazon posts which is the latest feature. Of course, it is for now available for US merchants who are brand registered on Amazon.
Amazon’s post utilizes the same marketing strategies as influencer culture. So, this is a critical opportunity for sellers with Amazon posts. You can curate and post products related content. Real time lifestyle images of your products and brand stories. And the best part is that they’re entirely free. So make sure that you take advantage of that feature if you’re brand registered. Now the benefits that Amazon posts have is actually plenty.
A few to count, you can promote product discovery. Use performance insights to empower your business and marketing decisions, boost brand awareness and loyalty among target customers. And gathering this wide range of information broadens your understanding, definitely of both customers as well as product, and this in turn increases the customer lifetime value on Amazon. Let’s look at the next method, which is Amazon product bundles.
If you have control over production, then it may be worth trying or trailing product bundle consolidating frequently purchased together products, which makes life easier for your customers, right? And by bundling products together that complement each other, you will be able to become one of the top sellers. Which means there’ll be very less or no competition for the buy box. Now customers will pay more for the convenience they get when they find bundled items. When grouped properly, selling product bundles can be more profitable, of course, than selling the individual products.
And that’s because you can set your own price without worrying about the competition. Now, how do you find the right products to bundle? Well, you can use the frequently bought together section to find the products that sell with your existing product. Use these insights. You can create bundles that save money and clicks for your customer. This in turn will increase your average auto value and therefore increase your CLV because the higher the average auto value, it’ll give you more leverage to increase ACoS and drive more sales.
And therefore help you make your profit levels as well. The last tip is deploying subscribe and save. Amazon’s subscription service is quite popular. We know we all know about it. They charge between 5% to 15% for the privilege, but it saves on the cost 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. So it can also help you save on additional costs and work.
How does it work? Well, customers opting to subscribe and save means that they’re less likely to switch to another brand. Especially for resellers who are watching the webinar right now, they are also less likely to buy the products from another retailer, and therefore resellers also reduce their reliance on continuously reducing prices to win the buy box. Maintaining or improving average selling price will naturally improve the lifetime value. Right? So these were the quick five tips from my side to improve your customer lifetime value, which you could definitely implement today.
And for those who stayed till the end, and most of you did. So we have bonus tips for you. The first one is product inserts. So including an insert in the packaging to remind customers that you sell a range of products or the product is designed to be repurchased is very important. It’s against Amazon’s terms or services to use inserts, Tor people to repurchase. So do not do that, but do use the inserts to encourage customers, to browse your Amazon store and remind them of the usual product replenishment frequency.
The next one is Amazon promotions that you could definitely leverage. You can test the variety of promotions that Amazon has to offer, and you can start by prioritizing promotions that encourage the customer to buy more products in their initial purchase. For example, three for two offers as is written here, the next one is leveraging personalized office in transactional emails. While Amazon uses complementary product recommendations embedded in its post purchase emails itself, these emails have much, much higher engagement than typical campaign emails.
So personalization from the subject line to the imbedded product data to personalized product recommendation widgets is super inspirational and you should definitely leverage that. The last point is layering Omni channel strategy to keep in contact with customers. Now, while the emails remain [inaudible] channel during the purchase and post-purchase communication process, it is increasingly difficult to re engage customers via email. So to mitigate, that brand should create and execute a clear Omni channel strategy to drive repeat purchases.
And this includes gaining permission to communicate via SMS, social media channels, and other modes of communication that makes sense as per your industry. So these were the quick bonus tips to boost your CLV. And here we come to an end of this quick session to increase your CLV on Amazon. If you’re new here to this space, and if you’re new to DataHawk, well, we are an Amazon analytics and optimization software that provides for Amazon sellers, vendors and agencies to help increase sales, optimize margins, boost productivity, and gain insights.
We have five main products that cover all your needs on Amazon. We have multiple features within these products. Our SEO takes care of your daily organic performance on products on Amazon. And we allow you to use keywords based on ranking and search volume. The product data analytics provides scheme metrics on any product on Amazon. For instance, pricing, star ratings, estimated sales, etcetera. We provide alerts, which are based on custom triggers that you could create for yourself and your team.
And we also provide best seller rankings on more than 20 key categories on Amazon. The market research and intelligence helps you gain insights on market dynamics, optimum price to be ranked on the first page for an organic search is one of the best examples. The next one, advertising analytics helps you to monitor and analyze your advertising performance impressions, conversion rates, ad spend. Ask it, you have all the KPIs on advertising.
And our financial analytics helps you monitor your daily sales, sales orders, units sold. You can also use our sales estimators, which are definitely very important to focus your inventory. And we have a plethora of report types under each of these products and features that you should use for yourself and your team and track your performance on a daily basis, and get notified whenever there is a need to optimize any element of your listings or your account on Amazon.