Remember the good old days when the roads were emptier than your bank account, chocolate bars were as big as your head, and website traffic was cheaper than a Big Mac? Life was good...
Whilst we could reminisce for days, let's get real, those days are gone. So, what are the key metrics that will drive sustainable and meaningful growth? 🤔
With rising acquisition costs and attribution issues for ad spend, you need to know exactly how much you can afford to spend on acquiring customers. And the way to do this is by calculating your Customer Lifetime Value!
Customer Lifetime Value is made up of some core metrics: Average Order Value, Purchase Frequency, Margin, and Customer Lifespan. Don't just rely on AOV though, this is a blended average and it can be dangerous when you have high or low-value items that could be skewing this number. See if there are ways you can break this apart either by customer segment, or time specific cohorts.
To increase your true average order value, try cross-selling and upselling, and play around with your free delivery threshold. Customers love free delivery, so use it to your advantage!
Communication is key when it comes to increasing your purchase frequency. After all, how do you get customers to order more of your product, more often? Be heavy with your comms strategy here and reassure customers with updates on their order status. You can even ask for feedback and referrals! Some key flows set up with your email service provider of choice can take care of this on autopilot, so invest some time now for some killer future rewards.
Subscriptions are great for ensuring positive cash flow and repeat orders, but they don't account for individual consumption rates. That's where Relo comes in! With AI and personalised consumption data, you can accurately predict when each customer needs to replenish their product, making sure you drop into their DM's at just the right time.
Once you know your Customer Lifetime Value (see how to calculate this here), you'll be able to determine EXACTLY how much you can spend to acquire a customer. A good ratio is 3:1 - Customer Lifetime Value to Customer Acquisition Cost - this shows you're acquiring customers, growing at a steady rate and remaining profitable whilst you do it.
If you wanted to get aggressive with your acquisition strategy and outspend your competitors, try pushing this ratio below 3:1. You're sacrificing some profit for market share and putting the squeeze on your competition.
If your ratio is sitting at 4:1 or above, you are either sitting back counting all of that money as you're the market leader, or you're not growing as quickly as you could be, leaving money on the table for your competitors.
If you want to go to next level Customer Lifetime Value modelling, you can calculate this for multiple segments of your customer base, tailoring your customers experience, budget, retention efforts and acquisition targeting based around a specific number for each group.
However your cut it, with this one number, you'll know exactly where to put your efforts and maximise all your budgets.