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With ad costs continuing to rise, clickthrough rates decreasing and increasing e-commerce competition, it will harder to grow your brand online in 2019. The only brands that will continue to grow are those who can improve the delta between their Lifetime Value and their Cost per Acquired Customer, or LTV: CAC. This blog post will cover the factors that increase LTV and decrease CAC, plus Shopify apps that optimize these factors.
Lifetime Value (LTV). is mainly influenced by average order value (AOV), number of purchases and gross margin percentage.
Average Order Value:
AOV can be increased by upselling and cross-selling. Upselling is when a customer purchases a more expensive version of a product (“Would you like that supersized?”). Cross-selling is when the customer buys a complimentary item in addition to the item they were original buying (“Would you like fries with that?”). LTV can also be improved with incentives for more spending (for example, free shipping on purchases greater than $100).
A great Shopify app for up-selling and cross-selling is Product Upsell by Bold. Product Upsell by Bold let’s you set an upsell or cross-sell item to pop up whenever a customer clicks Add to Cart. Bold’s Brain app is also great to pair with this because it offers great cross-selling insights, you know which products to cross-sell or bundle based on your store’s past purchase data.
A Shopify app to improve AOV by incentivizing more spending is Bold’s Sales Motivator. This puts a notification on your customer’s screen to remind them how much more money they need to spend to get a reward each time they add an item to their cart. Bold reports this app to consistently improve AOV by 20-30%.
Number of Orders:
Another way to increase LTV is to increase the number of orders. This includes not only number of new customers, but the average purchase frequency of each customer. Converting more website visitors to purchasers and increasing the number of repeat customers can help.
Cart Abandonment is a huge problem for e-commerce. Cart abandonment is when people click Add to Cart, but leave your website before purchasing. This happens with 70% of Add to Cart clicks. The Shopify app Checkout Boost addresses cart abandonment and people ready to checkout, increasing checkout rate by 25%. Checkout Boost creates popups that trigger when someone is exiting your website, and these popups contain discounts to incentivize a checkout.
A way to quickly increase average purchase frequency, thus average number of orders, is by upselling past customers. A highly effective Shopify app for this is Zipify’s One-Click Upsell app. This app creates an upsell page immediately after a customer makes a purchase, and this upsell only takes one click for the purchase to be made. Zipify reports that on average, users see a 10-15% increase in sales immediately after using the app.
Gross Margin Percentage:
Gross margin percentage total sales revenue, minus cost of goods sold, divided by total sales revenue, expressed as a percentage. A quick way to decrease your gross margin percentage and increase your LTV is to optimize shipping costs and time allocated to shipping. ShippingEasy finds the best shipping rates, and even has access to exclusive low shipping rates, and makes the shipping process much more efficient overall, with everything visible in one dashboard. ShippingEasy also notifies the customer about shipping updates, and even has an email marketing component that can send retargeting emails to past customers to improve number of purchases. You save money on shipping, time on label generation, and earn more with email marketing.
Cost per Acquired Customer (CAC)
Cost per Acquired Customer (CAC) is mainly influenced by sales and marketing efficiency, especially with paid advertising. We at Voy Media specialize in making better use of advertising budgets by increasing Return on Ad Spend (ROAS). Growing your audience on channels outside of paid traffic will also reduce marketing costs.
One way to get a better ROAS is to improve advertising warm and hot audiences with retargeting. Repeat customers spend 67% more and are 5 times cheaper to obtain than new customers. Many marketers neglect this when starting out, and because these audiences convert at a higher rate for less money, this is an ideal strategy for reducing CAC.
Utilizing channels separate from paid traffic increases sales and marketing efficiency and CAC. Starting a podcast, growing your email list and community building through Facebook groups are just some ways to do this.
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