In the hyper-competitive marketplace, business owners are striving hard to stand far above the competition. They are finding diffident strategies and techniques to help them acquire customers and generate sales. Utilizing customer lifetime value accurately will help the business owners improve the company’s brand value, sales, and bottom line. Whether you are new to Amazon or finding it hard to grow your sales, all you need to do is read the article until the end. We have covered all the important details about Amazon’s customer lifetime value, its best practices, and its benefits.
What Is the Amazon Customer Lifetime Value?
According to the definition, amazon customer lifetime value indicates the total revenue a particular customer can generate for your business throughout his lifetime. Also known as CLV or LTV, customer lifetime value on amazon is the key performance indicator that focuses on getting repeat clients. Business owners who wish to calculate the return on marketing investment should first calculate the CLV. Calculating CLV helps your business to get long-term value from acquiring a particular customer and analyzing the performance of the customer at the customer level.
Why should you calculate Customer Lifetime Value on Amazon?
Using CLV on Amazon can help business owners in numerous ways. You get an in-depth understanding of which customer segment you need to target, and you also ensure that you get the maximum number of retaining customers. In addition, you should consider monitoring Amazon KPIs if you are an amazon business owner. Knowing the metrics will help one to get an in-depth insight into customer insights. Still on the fence about why you need to analyze CLV to prepare customer lifetime value?
Accelerate revenue growth
Attracting potential leads to your business and turning them into customers is no easy feat. Reports and information evaluated by the CLV can help you get a deep understanding to accelerate revenue growth. You will get a chance to understand which customer segment makes repurchases. If you are ready to spend a little on amazon ads, it will help you to expand your business reach and outrank your rivals in no time. The best part about investing in amazon ad slots is that there are limited ad slots that reduce the competition to a large extent.
Read about important Amazon reports.
Allocate resources to maximize profits
Not every customer who buys your product and services is your loyal customer. There are high chances that a customer can turn to your competitor after the first purchase. It could be due to a bad customer service experience or a lack of good content. Understanding the customer’s lifetime value by analyzing his business with your company can help you allocate your resources wisely. You can offer high CLV rate customers personalized service to ensure they keep making purchases from your store.
Analyze which product is profitable
As a business owner, it is crucial to understand the products that bring business to your company. For instance, suppose you sell two different products – Product A and Product B. Calculating the customer lifetime value helps you understand which product is more profitable, say Product A. When you know the right product that brings more traffic and profit to your business, you can invest your advertising budget more on Product A than Product B. Thus. It will help you improve the ROI rate and gain more customers.
Even though calculating the customer lifetime value on amazon gives you a complete idea about whether you are generating results, it is vital to use other metrics to ensure that your customers are satisfied with your products. Good customer service is a surefire way to improve your brand value and retain more customers.
How To Calculate Customer Lifetime Value on Amazon?
Now that you have an idea about how beneficial customer lifetime value can be, it is time to understand the calculation process of CLV on Amazon. Before starting the calculation process, export the report from Seller Central Dashboard. To get the raw data from the reports, you must follow: Reports > Fulfilment by Amazon > Amazon Fulfilled Shipments. Once you find the raw data, you can then export it and consolidate the transaction in one file. Then, you can follow a few steps below to calculate the exact customer lifetime value.
Read about seller central dashboard in our Amazon Seller Central Guide.
Pivot the data
First, you need to start structuring the data into the pivot table. Once you export, the data will help you with information like the number of customers, the total number of orders, and much more.
Sort the pivot table
The pivot table created in the first step needs to be sorted in the second. First, you need to sort the whole table by the price of each item. The table will contain two rows – one filled with the buyer’s name and the other revealing the sum of the items they have purchased.
Count the number of buyers
At the bottom of the table, you will find the sum of all the item prices. If you wish to count the number of unique buyers, you must highlight the cells. At the bottom right corner, you will find the sum of all the buyers. Another method of counting the number of buyers is to add the COUNTA function.
Consolidate the total data
Now it is time to report the final outputs in a new worksheet. Here you need to add the Total Order Value with the total number of customers who have purchased with your business.
Calculate the number of unique orders
Here you need an extra row in the pivot table indicated as ‘Amazon order item id.’
Count the number of unique orders
The next step is to count the number of unique orders as we have counted the number of buyers. Again, you can highlight all the rows, and the sum of the number of unique orders will be displayed at the bottom right.
Copy & paste the unique orders
Once you know how many unique orders have been placed by your customers in a specific period, your next step is to copy and paste the unique orders to the report summary for further evaluation.
Calculate some key metrics
As soon as you export the data into the report summary, your next step is to make some calculations. Business owners need to pay extra attention to annual customer value, average order frequency, and average order value.
Here is how you can calculate it. Be sure to follow the steps accurately to get accurate results and key metrics values at the end.
Average Customer Value = Average Order (for the time you are calculating) X Average Order Frequency (for the same time period)
The resulting value you get is the amount an average customer will spend on your products or services in a month or year. The average customer value will help you to get a chance to understand the two main levers, including average order value and frequency.
Calculate the average Customer Lifetime Value
Multiply the expected average customer lifetime with the average lifetime to calculate the total customer lifetime value. Then, depending on the historical data you’ve about your business sales, you can easily calculate the customer’s average lifetime. In simple words, the average lifetime is the duration that a customer maintains a relationship with your business.
To calculate the churn rate, here is the simplest formula you can use:
1-(Retained Customers Year 2/Total Customers Year 1)
The resulting value can be the average customer lifetime in years or months.
Calculate Total Customer Lifetime Value
The last and final step is to calculate the total customer lifetime value by multiplying the expected average customer life years and average customer value.
Total Customer Lifetime Value = Expected Average Customer Lifetime x Average Customer Value.
Following this step-by-step guide will help you accurately calculate the total customer lifetime value and use it to adjust your marketing strategies. Analyzing the customer lifetime value on amazon will help to understand the cost of customer acquisition, target repeat customers, and maximize your profits.
Read more about calculating Customer Lifetime Value.
Tips to improve the Customer Lifetime Value on Amazon
Every business seller on amazon works to make a profit and retain customers. However, the high market competition can make it hard for you to get customers and keep a steady cash flow. If you are looking to overcome such barriers, you must follow a few ways to help you improve your CLV on Amazon.
Understand the buying patterns
When it comes to maximizing your CLV and improving sales, it is vital to understand your customers’ buying patterns. This is one of the best ways to predict if there are chances of repeat purchases. While analyzing, calculating, and predicting future buying patterns, be sure to use accurate data from a long period of time. This will improve the chances of accurate predictions, which, in turn, will lead to profit.
Bundle Complementary Products
Studies reveal that selling product bundles on amazon are more profitable than individual products. For this reason, you should bundle the products that complement each other. Selling bundled products will not only help you to set your own price for the items but also ensure that you do not have to face competition in the market. While selecting the products for grouping, be sure to check the ‘frequently bought together section.
Subscribe & Save
Many business owners choose the subscription service of amazon. Even though you need to pay around 5-15% for the privilege, it can help you save the customer acquisition cost on subsequent purchases. Furthermore, with access to the Subscribe & Save option, you can improve the chances of repeat customers by locking customers into long-term agreements. Hence, it will help you to save a few bucks and maximize your profit eventually.
Packaging Inserts
Packaging or product inserts are a good way to remind your customers about leaving reviews or browsing through your other products at the amazon store. Nowadays, customers love exceptional customer service offered by different businesses. When you choose product inserts, it helps you to create an exceptional buying experience. While using the product inserts, be sure your messaging does not encourage the repurchase of the item from your website. Keep the messaging as per the TOS of amazon.
Prioritize High CLV Product
Calculating the customer lifetime value on amazon will help you to understand the products with high and low CLV rates. In addition, you can check out the products the customers are repurchasing. To maximize your profit and overall CLV, you need to pay extra attention to these star products. Market these products with targeted ads and announce lucrative discounts to improve the overall customer lifetime value.
Amazon Posts
Amazon comes with one of the exciting features called amazon posts. This is an amazing opportunity for sellers looking to spread awareness about their products and services on amazon. This feature will help you boost product discovery, boost brand awareness, improve loyalty among your targeted customer segment and empower your business.
Remember, there is no one-fit-for-all approach that you can follow. That is why it is crucial to mix and match these strategies and choose the one that fits your needs and business preferences.
Conclusion
Standing ahead of the curve has never been an easy task, especially when there is fierce competition in the market. Getting business insights with the help of different key metrics will help you improve how your business works. understanding Seller Central and Advertising Console’s various dashboards and reports will grant insight into the performance of your Amazon business and help you calculate the CLV on Amazon. However, merchants selling on Amazon often face data constraints when they scale up. Some data issues include –
- Limitations of Amazon dashboards in terms of customization,
- Historical data availability,
- Absence of a single view across different Amazon marketplaces,
- Manual compilation of reports, and
- Dealing with similar challenges on non-Amazon platforms and then making a consolidated report.
As sellers grow, their data needs grow with them. That is where we, Saras Analytics, can help with our eCommerce-focused Data pipeline – Daton and custom ML and AI solutions to ensure you always have the correct data at the right time. Request a demo and envision how reporting is supercharged with a 360° view.
