How to Increase Customer Lifetime Value With Consumer Financing from ChargeAfter
Customer acquisition is a cornerstone of eCommerce success, however, it is not the only pivotal pillar to profitable online business growth. Customer retention remains a crucial part of eCommerce growth and online store owners must consider ways to promote customer retention. In this article, we detail customer retention based on the importance of determining and improving customer lifetime values. We also provide a way to improve customer lifetime values through the integration of consumer financing from ChargeAfter.
The Importance of Customer Lifetime Value
Customer lifetime value refers to a critical metric and the techniques that drive customer retention. In a nutshell, customer lifetime value is the total value of sales that an individual customer brings to an online store from their first purchase to their last purchase.
Improving customer lifetime values is critical as businesses do not need to invest heavily in return customers. Customer retention strategies are far more affordable than customer acquisition strategies. In the long run, businesses can ensure profitable growth by encouraging return customers to shop as opposed to launching extensive campaigns with costly budgets that may not yield the results intended.
The importance of improving customer lifetime value lies in the following three benefits:
- It drives repeat purchases for greater long term profit and sustainability
- It boosts loyalty among existing customers who can influence other shoppers
- It reduces the investment costs required to drive sales
Using the following technique, you can better prepare your eCommerce platform to improve customer lifetime values:
The RFM Technique
RFM refers to recency, frequency, and monetary value. The technique involves segmenting your customers based on the value that they can potentially bring to your business. In order to do so, one must take into account these three factors:
- Recency: how recently a customer made a purchase on your website. The more recent since their last purchase, the more likely they will buy again.
- Frequency: how often a customer purchases from your store within a specific timeframe. Customers that purchase frequently are valuable as they express a loyal interest in your brand.
- Monetary value: the monetary extend of a customer’s last purchase on your website. The more expensive a customers purchase, the more likely they are to buy again.
Looking at these three factors, business owners and their marketing teams can categorize specific shoppers into tiers of value that help guide how affordable targeting those customers will be for greater return on investment. Customers that perform well in all three categories are your most valuable customers, and you should focus on them.
The Customer Lifetime Value Formula
To calculate customer lifetime value and assess the analytical significance of each customer, consider the following three formulas in sequential order:
- Average Order Value = Total Sales / Order Count
- Purchase Frequency = Total Orders / Total Customers
- Customer Value = Average Order Value x Purchase Frequency
Following these three steps with each customer, you will have a monetary indication of their customer lifetime value. This will allow you to craft marketing strategies that attract your most profitable consumers.
How Consumer Financing Increases Customer Lifetime Value
The next step is to implement said marketing strategies to leverage your loyal consumers. While there are many techniques to do so, one of the most cost-effective tools to improve customer lifetime value is consumer financing from ChargeAfter. This tool is a checkout integration that gives your customers access to on-demand and personalized financing plans at the push of a button when checking out. With this integration, customers can purchase from your store quickly and affordably. They will not have to seek the financial assistance of third-party providers that come with extensive repayment plans. Instead, they can easily shop with your store – encouraging existing customers to raise their average order values and increase their purchase frequency. The result will be a greater customer lifetime value for each consumer.