Today e-commerce or online buying and selling is growing and product returns have become an inevitable part of the customer's shopping experience. Returning goods to sellers is now commonplace for customers and they hope that they can have a flexible and free return experience. If they get a good experience of course they can become loyal customers of your business. So, why is retaining customers or having loyal customers so important to your business? And why should Customer Lifetime Value be considered in a return policy? Check the explanation below!
Customer Lifetime Value is the average amount of money your customers will spend on the products or goods your business sells during your relationship with them.
For example, if a customer continues to buy a product or service from your business for 10 years and spends IDR 100k per year, then the value of the customer's lifespan is IDR1,000k less the money you spent getting that customer.
Imagine you are selling an item such as clothing in your E-commerce. You spend IDR 50,000 to create an ad that attracts customers. Your customers buy an average of seven outfits each year for 10 years. Your profit margin per outfit is IDR 100,000.
Based on this data, you make IDR700,000 a year in profit from your customers, and make IDR 7.000.000 over a decade. You then deduct the amount of money you spend on acquiring customers, which results in a net customer lifetime value of IDR 695,000.
The calculation is a simple example, but this data becomes important in your business.
Your customers will not only benefit from the money they spend today. They also have future value if you can keep them as a customer.
Customer lifetime value is important because the higher the number, the greater the profit. While you're always going to have to spend money to get new customers and keep existing ones, you need to know that getting new customers costs you five times as much as retaining existing ones.
When you know your customer lifetime value, you can increase their purchases. You can also make various efforts to retain your existing customers through email marketing strategies, SMS marketing, social media marketing, and more. In essence, if you want to attract new customers, don't forget the old customers who are your loyal customers.
If you already know your CLV score, you can also increase it using the following methods!
Whether you are marketing to your customers via email or SMS or both make sure they are segmented based on their interests and purchasing power. Someone who is interested in your line of sportswear will certainly not want the same content as someone who wants to buy clothes in a casual style. You also need segments for repeat customers if you want to stay in touch and bring them back to your site for future purchases.
The number of products or services you sell will depend on several factors, including whether or not customers are likely to buy more of your product more often.
For example, a seller who offers clothing products certainly sells more products than a seller who offers washing machines. People need new clothes more often than they need a new washing machine. However, you can create a product or service that complements your existing product lineup to encourage more purchases. For example, maybe you sell both your own washing machine and detergent. Customers who buy your machine may also want a detergent made specifically for it, and therefore they may become repeat customers.
Customers love discounts and even if you give them a 10 percent discount coupon and you still have a healthy profit margin, customers will definitely take advantage of it.
If you're interested in increasing your Customer Lifetime Value, consider sending a coupon code a few weeks after the customer makes a purchase. You can also offer a discount for example on the purchase of two or more items, which will certainly make them shop more. Don't forget to also send a thank you email so that customers feel more appreciated and they will rate your service positively.
If someone buys from you, they may also be following you on social media at the same time. So don't waste that opportunity. Keep in touch with your regulars through social media and offer special offers to return to your site. You can also provide interesting content and make them have more trust in the brand or brands that you develop.
If you want to increase your CLV value, you can also start a loyalty program. Customers can earn points for future purchases and save money in the future.
There's a reason so many physical stores have loyalty programs. Loyalty programs can be very beneficial for your business even if you only sell products or services online. Therefore, give your customers loyalty points that they can use to shop in the future.
Customer lifetime value can be more important than you think. This value can affect customer retention rates, increase loyalty, and help your business stay profitable.
Keep in mind that a good return experience is very important to attract and retain loyal customers of your store. In fact, 89% of customers will check the return policy before deciding to buy a product.
So, what would happen if your business offered a return experience that made a positive impression on customers? Of course you will get loyal customers or loyalists.
Loyalists will usually return your returned item undamaged and on time, allowing the seller to return it to store inventory and resell the returned item. Loyalists can not only return your items well but they will also shop at your store again.
To create the ideal return experience, sellers need to adapt
to meet customer expectations. As data provided by Optoro, 39% of your business revenue comes from loyalists or loyal customers.
You can also get loyal customers of course by providing a good return experience. ReturnKey is software that can help you solve customer return problems more easily and quickly. That way customers will not hesitate to repurchase your product and you will get a higher Customer Lifetime Value in the future.