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AOV vs. LTV: Why Customer Lifetime Value Matters More Than You Think

a couple of weeks ago
AOV vs. LTV

There’s no question that most marketing techniques are focused on making sales larger and more frequent. Offering free shipping increases sales, bundling boosts order size, and ad retargeting brings your eCommerce audience back into the fold.

These are all great marketing tactics, and they work toward the same goal. But there’s one eCommerce metric that often goes unaddressed in marketing and sales: increasing the lifetime value of your customer.

The lifetime value (LTV) of a customer often goes overlooked because it is more complicated to incorporate into eCommerce metrics. But it is well worth your time, since LTV can better account for your long term profitability.

Short Term Boost of Revenue or a Long Term Boost of Profitability?

Average Order Value, or AOV, is the average amount of an individual customer order in your eCommerce store. In contrast, Customer Lifetime Value, or LTV, is a measure of the revenue or profit generated by a single customer over the course of their lifetime with your company. Gross LTV refers to the revenue from a single customer over their lifetime, while net LTV measures the profit earned from during that lifetime.

AOV is important because the higher your AOV is, the less effort you need to spend on finding new customers. You need fewer customers overall to make the same amount of profit. However, focusing solely on AOV can be a mistake since it gives a picture of short term revenue rathre than a long term boost of profitability.

LTV is important for eCommerce brands because it determines the worth of a customer over time rather than the worth of an individual purchase or interaction.

Companies with high customer LTVs need fewer customers to make a profit. This can help determine how much money can be spent on marketing geared towards new customers, as you’ll know how much they’re worth long term.

You’re more than likely already well versed in optimizing your storefront and marketing to boost AOV. But what can you do to maximize LTV?

8 Ways to Maximize LTV for Your eCommerce Brand

Make brand loyalty a primary business goal

If you start with the question “How can we keep customers coming back?” the potential answers will span marketing, sales, customer service and everything in between.

Make marketing channels more efficient

You don’t want your marketing efforts to feel like marketing to current customers. But that doesn’t mean they shouldn’t efficiently bring customers further down the funnel. Any marketing efforts should add value to customer interactions with your brand — birthday wishes and special offers in a targeted drip campaign comes to mind.

Make customer feedback a closed loop

Even negative reviews can lead to better ratings if they are handled correctly. Take the time to respond to reviews, find ways to make it right with dissatisfied customers, and incorporate feedback into your processes and products.

Make personalization a key part of your martech

Personalization is all about making the customer feel known and understood — by design, this keeps them coming back. If you don’t already have the tools in place to deliver personalized landing pages, drip emails and special offers that’s your first step.

Make customer service a business pillar

According to a recent survey, nearly 90 percent of companies expected to compete primarily on the basis of customer service. Customer experience is the new marketing. Your business with a customer isn’t done once they checkout — you need to continually show them why they should come back.

Make customer transactions easy

An easy checkout process will help increase AOV and an easy account creation process should increase LTV, as it gives you a foot in the door for returning customers. It’s as simple as that.

Make use of your customer data

 From how far down the funnel they make it to demographics, you have customer data at your fingertips. You should bring all of this together on a customer data platform to realize the benefits of acting on data in real time will offer your eCommerce brand. On the other side of the same coin, you should be using data analysis and big data to assess how each tweak you make — from paid campaigns to personalization — affects your profitability.

Make an investment in high quality content

 If you’re paying for SEO content on your website, you’re probably hoping to increase page clicks and views. But if you’re doing SEO writing well, you’re also creating a wealth of high-quality content related to the products and services you provide. If readers are coming to your site for accurate and in-depth information, they’ll also come to your site for products and services that they trust.

AOV and LTV is not necessarily an either/or conversation for eCommerce brands. The real question is which you should be using at any given time or to make any given decision. Both metrics have their time and place in most companies.

 

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