Not all customers have the same value for an eCommerce business. The ones that spend more, stay with the brand longer, and advocate for it, can be called high-value customers. They obviously bring more value and have the biggest impact on the bottom line.
How much exactly? 10% of all brand’s customers are spending three times more than an average customer. With that being said, it is worth investigating and defining this group of potential super-customers, and then concentrating retention efforts on them.
From the retention point of view, it costs 16 times more to build a long-term relationship with a new customer, compared to keeping an existing one.
So how can a brand identify, acquire and retain high-value customers?
Who are the most valuable customers for your brand? The biggest spenders with the highest AOV? The advocates who bring in 2+ friends? Or the loyal customers who keep coming back month over month? Can you define demographic or behavioral factors that high-value customers have in common?
The answer is different for each industry and brand, but there are universal principles and metrics that work for everybody.
Metrics to identify high-value customers
Segment your audience and compare their lifetime value and other metrics. DTC analytics platform, Peel uses 100+ metrics to define high-value customers for eCommerce brands, including:
LTV per customer
Lifetime Value is an estimate of the average revenue/profit (if costs are included in the calculation) that a customer will generate throughout their lifespan as a customer. You can use customer lifetime value to identify customer segments that are most valuable to the company.
when were they acquired,
what did they buy in their first purchase,
what discount code campaign,
the channel brought them in,
where are they purchasing from, etc. to create the most profitable offering?
What customer tag they have - tagged with a special attribute to define them whether it’s a referral program or a part of newsletter campaign, etc.
ROAS (Return on Advertising Spend)
The higher the ROAS the better. It is your conversion value/ad spend. Anything greater than 1 means you are making a profit. A ROAS of 3.0 is showing that for every $1 we spent on ads in that ad group, we earned $3 back from that conversion (a 200% return.)
AOV (Average Order Value)
Revenue/number of Orders. This tracks the average dollar amount spent each time a customer places an order. When you can improve your AOV you can directly improve profit. The higher your AOV, the more you are getting out of every customer and of course out of every dollar spent to acquire those customers. Ex. tactics to improve AOV:
Bundling, upselling, and cross-selling additional products and services
Adding a free shipping threshold (typically not too high above the average order value, but high enough to ensure the company can afford it)
Applying a set discount on minimum order values (and, if relevant, bulk orders)
LTV: CAC Ratio
By measuring CLTV to the cost of customer acquisition (CAC), companies can measure how long it takes to recoup the investment required to earn a new customer, such as the cost of sales and marketing. Customer Lifetime Value to Customer Acquisition Cost ratio measures the relationship between the lifetime value of a customer and the cost of acquiring that customer with the same day attribution and a blended CAC.
Other metrics include Customers Returning Rate, Repurchase Rate, Days since First Order, Retention Rate and so much more.
Segment any metric by discount code from your loyalty program to see how many new customers you are acquiring and/or retaining. Are your customers returning for a second purchase? Peel unlocks important metrics, such as LTV, repeat purchase rates, new orders, and customer returning rate to level up your loyalty campaigns and make more sales.
2. The “advocates” segment
Our analytics team at Talkable recently discovered a correlation between advocacy and buying behavior of customers. The active customer segment, who invited 1 and more friends to the brand through a referral program, usually has a higher repeat purchase rate (RPR), compared to usual customers.
It makes sense that people who make extra effort to advocate for the brand, tend to buy more, but now we have fresh numbers from the biggest US eCommerce brands to support this claim.
RPR (repeat purchase rate)
Customers who came through a referral offer (Friends)
Almost the same as general customers
Customers who brought 1+ friends (Advocates)
The best results. Twice more than general
Customers who shared a referral link (Sharers)
People who share always perform better. They like products and have the intention to buy more.
If you have a referral program, value your advocates: create a special reward, exclusive perks for them. If your brand doesn't have a referral program yet, keep an eye on those customers who bring in their friends and family through organic channels.
There is a common mistake that drains up the marketing budget for an eCommerce brand, and that is to build lookalike audiences based on the general customer base. This way, the brand attracts the same type of one-time buyers over and over again.
Concentrating on the high-value segment and attracting the same type of customers require more preparation and personalization, but will bring more revenue in a long-term perspective. First, acquisition campaigns become cost-effective, second, high-value customers will advocate for the brand.
So what are the strategies for attracting champion customers?
WOM, reviews, referral programs
Friend recommendations always work better than any type of advertisement. You just need to provide your customers with the instruments for advocating for your brand. It can be a simple social sharing button on the product page or an efficient referral campaign that will appear on the after-purchase pop-up.
Referral programs turn word-of-mouth into an efficient acquisition channel that can be analyzed and adjusted.
2. Friends and Family campaigns
Involve your employees. Customers who come through the company's employees tend to be more engaged since they have an emotional connection to the brand through a person they know. It can be a Friends and Family campaign that offers exclusive discounts for a limited time, even if it doesn’t target employees only. The idea here is to provide an exclusive offer for a hyper-targeted group of users.
The Friends and Family Referral campaign that Talkable launched with one luxury apparel brand drove over 4k shares, over 1.5k referral offer redemptions, and generated new email opt-ins. AOV increased within this Friends and Family campaign by 32%, compared to the brand's general average. It was a highly-targeted campaign promoted before Labor Day through emails and social media. The brand also encouraged employees to share the promotion digitally with friends and family using the link and added a push notification.
3. Personalized Loyalty experience that retains and delight
Members who are part of personalized loyalty programs spend 3.5x more on average.
Go beyond points and rewards to create personalized experiences. Customer experiences need to be intelligent and orchestrated at every step in the customer lifecycle, and the Loyalty program setup is no different.
Tips for going beyond points:
Gather customer insights by offering points for completing in-depth profiles, participating in quizzes and surveys, and engaging across channels. Ensure that the quizzes are visually appealing and user-friendly by incorporating your brand identity and tone of voice into those. Be true to your brand!
Learn more about your customer’s personality and lifestyles, their shopping habits, and more to deliver on-point product recommendations and personalized offers.
Include special incentives such as anniversary gifts to show appreciation for their loyalty.
True loyalty is defined by empathy and emotional engagement, so an effective new reward might be to donate to a good cause, offer an exclusive experience, or an unexpected offer.
High-value customers bring three times more revenue to the brand compared to usual customers. First, identify them using metrics such as LTV per customer, ROAS, and LTV: customer CAC ratio. Also, pay special attention to brand advocates, as they tend to spend more.
Second, acquire high-value customers through WOM strategies and referral channels and retain them with a personalized loyalty program.
Please share your thoughts in the comments section and feel free to contact our team with questions!