Sep 12, 2017

Optimizing Your Sales Funnel for Customer Lifetime Value

Selling private label skin care products to a customer once won’t necessarily help you increase profitability. Acquiring customers is certainly important, but it’s not enough. You also must make sure your customers are coming back for more. A customer that returns to purchase your products or services continuously is worth a lot more in the long run than one who only makes a single purchase and then never revisits your brand. Put simply: it’s essential that you optimize your CLV.

CLV stands for Customer Lifetime Value. It is defined by most people as your average total revenue per customer, once you factor out the average variable costs for each customer in a given cohort. Obviously, a strong CLV is therefore good for business. However, defining CLV is just the tip of the iceberg. You should also learn how to measure it accurately, and—more importantly—how to raise it.

How Do You Measure CLV?

Different businesses may use different models to assess their CLV. Some choose to measure it by looking at the historical data available for a given amount of time, whereas others attempt to refine that statistic by factoring in costs and revenues expected to occur in the future. Either of these methods can be effective if you remain consistent. Just don’t attempt to take a shortcut by assuming that CLV is simpler than it is. CLV isn’t the same as your total revenue or profit per customer. It’s about looking at the money you make from each customer in specific increments of time. If you can pinpoint that statistic and then raise it, you’ll be able to boost your overall profits quite nicely.

The Best Way to Raise Your CLV

There are three popular techniques for boosting CLV: you can learn where your best customers are and go after them, try to raise the average value of each order that your customers place, or increase the rate at which they repeat purchases. For our purposes, we will focus on the first one. The more you know about the people who spend the most money on your products, the better equipped you’ll be to find more of them.

Be careful, though: you shouldn’t just be studying customers who produce a lot of revenue right now. You’ll want to be more detailed. Look for your private label skin care customers who are likely to become more profitable over time. How? Simple: by using CLV.

Here’s an example: if you were only looking at customers who spent the most money right now, you might count out young people whose finances aren’t yet stable. However, while young people generally have less income, they will also have a much greater need to make more purchases over time, whereas people in more comfortable financial positions may already have more of their needs covered and will, therefore, be less likely to make more purchases in a given period. In this case, younger demographics have a higher CLV—so focusing on acquiring more of them can boost the average CLV for your business and provide you with more revenue in the long run.

The example above illustrates a critical point: CLV isn’t just an abstract number you want to raise. It’s also the best tool to help you figure out how to increase that number. The best way to boost your CLV is by paying attention to your CLV itself.

Find the Traits Shared by Your High-Value Lifetime Customers

If you’re selling private label skin care, age might not be the determining factor in finding your customers with a high CLV. It could be something else entirely: their proximity to you, their brand loyalty, their budget, etc. To determine the factors that your most valuable customers have in common, you’ll have to rely on some number crunching. Segment your current customers in various ways, and then look at the CLV of each.

CLV and Your Sales Funnel

A basic sales funnel has four parts: awareness, interaction, interest and action. You want to think about how each of these sections applies to your customers with high CLV so that you can draw more of them into purchasing. For example: when it comes to awareness, refine your marketing to focus on the segments of your customer base that have demonstrated high CLV instead of taking a blanket approach. For interaction, make sure you’re familiar with the needs of these segments and train your customer service staff to address them.

Many industries rely increasingly on subscription-based business models, so raising your CLV is likely to become even more important with time. Just remember: optimizing your sales funnel for CLV isn’t about changing the structure of the funnel itself. It’s about considering the people who you want to draw into it and making it easier to do so. Decide how you’ll measure CLV, identify your existing customers who are driving that rating up, and focus on bringing in more. If you can accomplish that, your profits will have nowhere to go but up.

No matter which of these methods you choose for increasing CLV, there’s no doubt it’s one of the most effective ways to build a business that lasts. When you focus on CLV and partner with a manufacturer and fulfillment company that has this in mind as well, your business wins.

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