How to calculate customer lifetime value

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In business, it’s common to get lost in the transactional aspect and focus only on short-term goals or tasks. But if you want to run a sustainable and long-term business, it is not just about acquiring new customers but also about building relationships with them. Customer lifetime value (CLV) is a true reflection of where you are at, in building these lasting customer relationships. 

To begin, let’s learn the formula of CLV. It’s simple math involving aspects like your store's total revenue, the average amount your customers spend on your store, and the rate at which they return. 

How to calculate customer lifetime value 

To lay a strong foundation for your success, it's essential to know the formula for calculating CLV. Your CLV provides you the direction to:

  • Make informed decisions about customer satisfaction
  • Create strategies to keep them engaged with your Shopify store
  • Achieve sustainable success and stand out from your competitors

You can calculate the CLV for your store in 4 steps:

  1. First, add up all the money your store makes – that's your total revenue. 
  2. Find the average amount a customer spends by dividing the total revenue by the number of customers you have; that's the average order value (AOV). 
  3. Next, see how long a customer sticks around and keeps shopping – this is your average customer lifespan (in months). 
  4. Now, multiply the average order value by the average customer lifespan, and you've got your CLV from each customer! 

CLV = AOV x Average customer lifespan

This formula helps you make smart decisions about your marketing efforts and keep your customers happy for the long haul.

Now, let’s look at a few tried and true strategies that help you increase your CLV. 

Build a mobile app to nurture your loyal customers

Boosting customer loyalty is simpler when you bring in a helpful sidekick – a mobile app that empowers you to create personalized shopping experiences. With your entire store accessible in their pockets, customers can shop with just a few taps. 

While only a handful of brands offer this level of convenience with a mobile app, it lends an air of exclusivity to your brand. A mobile app places you several steps ahead in establishing brand credibility. And when customers download your app, it already signifies their loyalty to your brand. All you have to do is seize this opportunity and foster a deeper connection with them, turning them into loyal fans of your brand.

Look how Vintage Boho Bag has built loyal fans who love shopping on their app. And when your loyal customers are as happy as you with your brand’s success, you know you’ve built your OWN community with a mobile app.

Vajro's mobile app is a great way to enhance customer loyalty. You can own the first-party data and understand customer behavior to personalize your promotions. This can look like recommending products they love, reminding customers about their abandoned carts, or offering tailored discounts. Vajro fits perfectly and enhances your omnichannel marketing strategies across app, email, and SMS, enabling you to build a wholesome shopping experience. 

In addition to these powerful features, Vajro also enables you to do live selling from within the app and on Facebook Pages at the same time. You can promote your live sale through push notifications and in-app banners to ensure maximum exposure. Live selling helps you promote the best deals and new products to your most loyal customers.

Implement retention strategies and loyalty programs

Keeping your customers happy and coming back for more is the best route to increasing your CLV. One way to do this is to explore customer retention strategies to ensure your customers stay excited about shopping with you. This includes (but not limited to): 

  • Sending them gifts or special offers if their cart value exceeds a certain amount 
  • Engaging customers with notifications when they visit certain product pages or collections
  • Giving them VIP access to exclusive deals

These strategies will help you build a strong bond with your customers, making them want to stick around and be part of your brand.

Now, let's talk about loyalty programs. A loyalty program rewards your customers for choosing your store over the diverse available options. It could be in the form of points, discounts, or exclusive perks like free shipping. When customers know they get something extra for being loyal, it creates a happy shopping cycle. They keep coming back, you keep delighting them, and your brand becomes their go-to choice.

By combining smart customer retention strategies with a loyalty program, you're not only selling products but also creating a community of happy and loyal customers.

Optimize your marketing efforts to increase CLV 

Align your marketing efforts with a positive customer experience to keep customers coming back for more. In addition to bringing in new customers through marketing campaigns, focus on your existing customers and ways to attract repeat purchases.

Vajro enables you to enhance your omnichannel marketing efforts through your owned channel - your mobile app - in many ways. Some of them are: 

  • Vajro integrates with marketing automation tools like Klaviyo and WebEngage. You can track customer behavior within the app and send targeted, personalized messages through push notifications, emails, or SMS to increase conversions. Does someone view a particular product often? Notify them that there is a discount on their favorite item.
  • Through integration with Shopify customer segments, you can group your customers based on their behavior, and target specific audiences with unique messages and promotions. This level of personalization keeps customers making repeat purchases, increasing their lifetime value.  In addition, you can get insights into the campaign performance with metrics like click-through rates (CTR), sales, and the best time and day to yield maximum conversions.
  • Once you identify the CTRs of your campaigns, you can optimize them by using different tones for your push notification messages. Vajro offers AI assistance to help you craft high-converting push notifications. All you have to do is type in the base message and choose a preferred tone.
Enhance your customer experience

Discover the best way to create a great customer experience for your brand. A positive customer experience is all about creating a smooth and enjoyable journey for your customers, starting from the moment they land on your website to the time they receive their order. Create memories while your customers shop to make your brand unforgettable.

When customers enjoy their shopping journey, they are sure to return to your store. Remember Vintage Boho Bags from our very first example? Look what some of their other customers have to say about their shopping experiences. When you make your loyal customers feel the love, they’ll stick to your brand for life. And that increases your CLV.

Think of each touchpoint like website navigation, product information, and post-purchase communication as a chance to add to this positive experience. When customers are happy with a brand, they tell their friends, and word-of-mouth becomes your best marketing tool.  

Vajro enables you to connect your app with Firebase Analytics. With this integration, you can analyze the entire shopping journey of every user. When you understand the difference in shopping patterns between your customers and visitors, you can optimize your promotions to turn visitors into customers. This can look like a discount on the items on abandoned carts, product recommendations based on a recent search, or a tiered discount.

Start your CLV transformation with Vajro

Whether it's a well-crafted loyalty program, the convenience of a mobile app, or the harmony between marketing efforts and customer satisfaction, the goal is one - To build a community of satisfied customers who not only make repeated purchases but also become your brand advocates. 

Explore Vajro to discover comprehensive insights into increasing your CLV. Sign up for a free trial here. You can also get a demo to experience firsthand how effortless it is to craft a mobile app that enables you to build a community of loyal customers. 

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