Data Analytics

3 Easy Techniques to Increase the Average Order Value and Lifetime Value of Your E-Commerce Customers

As you scale your business, it’s easy to get caught up in the excitement of adding new customers to your CRM. It’s the kind of growth that impresses investors and casual observers alike, and it’s why a behemoth like McDonald’s used to boast of billions served on their roadside signs. Something that’s less straightforward and often overlooked is keeping customers happy and coming back to spend more money with you on a second burger, electronic device, or other product.

Two metrics we track at Peel that can help you understand your customer retention efforts are lifetime value (LTV) and average order value (AOV). Both offer opportunities to offset your acquisition cost and increase profit, and equally important is the insight into customer satisfaction and loyalty that they offer. 

What exactly is LTV and why is it important?

At its most basic, LTV is how much money you can expect a customer to spend with you during the span in which they’re using your products or services. It’s important because it gives you an idea of product-market fit, customer loyalty, and at the end of the day, the higher this number, the higher your profit will be.

While that simple calculation can tell you a lot about your customers, when you’re ready for an advanced look into your metrics, consult our guide for calculating customer lifetime value. Analyzing different kinds of customers can give you the business intelligence necessary to replicate successful customer segments and divert marketing spend away from groups who are spending less and churning faster. 

How do we increase LTV?

1. More customer touchpoints 

You’re building a relationship with your customers, and the basis of any good relationship is trust. Closing the first sale and disappearing may come back to haunt you when a customer is deciding whether to stick with you or try a competitor for their next refill.

One way to build trust from the start is by sending a series of thoughtful emails before and after a customer shops with you. WkndNation gets right to it with an effusive welcome message that includes a personal discount code. You should also be ready to field questions on social media channels and live chat. An immediate response makes a huge difference to first-time and repeat customers alike.

2. Increase purchase frequency

The reason Dollar Shave Club and Birchbox are so keen to offer you savings on a subscription is that they understand the value of a customer who is continually using a product and receiving refills in a frictionless way. Is there a product in your collection that customers run through most frequently? Try offering a discount on a year’s supply and watch LTV climb!

3. Encourage loyalty

We’ve all kept a punch card in our wallet for years hoping to get that elusive “10th sandwich free.” The promise of a future free product works for e-commerce, too. Incentivize customers to make that next purchase or share your website wiht friends by tying rewards to that action. Take a page out of Morning Brew’s book and remind customers of their potential rewards in every newsletter.

LTV’s secret weapon: AOV

Another great way to improve lifetime value is by increasing average order value. AOV is another straightforward metric that’s found by dividing the total revenue in a defined period by the total number of orders taken during that same period. When forecasting, it can give you an idea of the amount of money you can expect a customer to spend during their next visit. So, how can you improve AOV and, by extension, LTV? We’re so glad you asked.

1. Cross-sell and upsell

Cross-selling is the technique of surfacing complementary products based on what customers already have in their carts. If they’re already shopping for toothbrushes, for example, there’s a good chance they’re in the mood to get toothpaste as well. Making this suggestion near checkout will definitely result in some add-to-carts. 

Upselling is a little different in that it offers a greater quantity or a more premium package than the one a customer already has in their cart. This might look like offering a discount on buying 5 toothpastes instead of one or offering a more effective (and more expensive) brand that 4 out of 5 dentists recommend.

Om Mushroom uses both techniques with ease. Throughout their checkout flow they are introducing complementary products and letting new customers know what’s historically been popular with previous purchasers. 

2. Promote a free shipping threshold

We don’t pretend to be psychologists at Peel, but we do know there’s some positive brain activity when customers see the shipping charge vanish from their subtotal. Tap into those good vibes by setting the threshold for free shipping at a level that requires customers to add at least one more item to their cart. Every extra product leads to a higher AOV.

Litographs does this by letting visitors know that shipping is free for domestic orders over $75 in the header of every page as well as letting you know how close you are to that threshold with each item you add to your cart. 

3. Bundle, bundle, bundle

Similar to cross-selling, bundling encourages customers to increase the quantity of their order by grouping complementary products in a bundle that costs less than the total of each item bought separately. 

Makeup brands do this really well. For example, Jones Road Beauty’s Miracle Balm is $38 by itself, but it’s also part of the Rose Kit, a $72 bundle that also includes three other “everyday summer essentials.” If your brand has built the trust we talked about earlier, a Miracle Balm customer is more likely to take a chance on your other suggestions and up their order and lifetime value in doing so.

Going deeper with data

Lifetime value really comes down to brand loyalty. And the best way to ensure that customers purchase more from you time after time is by making them feel special, communicating clearly, and delivering a quality product or service. Once you have that solid foundation, experiment with the tactics above to find the best mix for your customer base.

Want to go deeper into your data once your customer retention strategy gets going? With Peel Insights for Shopify, you’ll get automated analytics and business intelligence delivered right to the team members who can put them in play to increase AOV, LTV, and a whole host of other key metrics. Learn more and try Peel for free today.