One-off sales are a buzz on Amazon. But to really grow your profit, you need to retain customers and grow your customer base. Fundamentally, there are two ways of doing this:
- Acquire new customers.
- Focus on retaining existing customers and increasing their customer lifetime value (CLV).
Customer retention is, on average, cheaper than acquisition. What’s more, by retaining customers more effectively (and growing CLV) you can spend more on customer acquisition and still turn a profit long-term.
When you know your customer, and you know what products they are after, you can focus your ad resources and products on these gems rather than chase everyone and everything. Growing CLV should be a goal for any Amazon business, and how to make that happen is exactly what we will discuss here.
Suggested reading: CLV is all about understanding your customers. For more details on how to analyze and use customer data to your benefit on Amazon, check out our free eBook — How to Make Sense of Your Amazon Customer Data.
What is CLV?
CLV is a projection of how much net profit your company can make over time from one customer or customer-type. Customer lifetime value (CLV) — also denoted as LTV — is a powerful metric that gives you:
- Insight into which products are most important for long-term profits
- An understanding of what your products are worth to you
- A better approach to break-even ACoS and PPC spend (more on that later)
- A longer-term and more strategic outlook
It also enables you to:
1. Market better
Customer Lifetime Value effectively comes down to 'buying patterns'. You are predicting what customers will buy next and the likelihood of a repeat purchase — however, when coupled with relevant data that has been collected over a long period of time, the predictions can actually be highly accurate. This has benefits in crafting targeted ads, which can help you increase and maximize CLV. It can also help you create an Amazon product bundling strategy — which can help you win the buy box, increase CLV and your average order value (AOV).
CLV tends to lead to marketing that focuses on your customer, and lends itself to a "full funnel" approach. It encourages better use of the Amazon ad resources. CLV tools can even break down how segments of your customer base contribute to your total revenue. You can recognize how dependent you are on existing customers and tailor marketing strategies and campaigns accordingly.
2. Gain more sales
CLV gives you the ability to spend more on focused customer acquisition — enabling high spend on PPC — while still turning a profit long-term. This is because an accurate CLV projection enables you to look beyond the first sale when calculating your break-even ACoS and determining how much you can spend on ads and still turn a profit. This creates a competitive advantage in a competitive marketplace, and generates more sales.
Suggested reading: Understanding how to calculate break-even ACoS, and its relationship to CLV are important prerequisites for using CLV to best effect. If you want to learn more, check out our guide — How to Calculate Break-Even ACoS and CLV.
With that out of the way, let's look at three fundamentals that will help you increase CLV.
1. Effectively measure product-specific CLV
If you want to improve something, you need to be able to measure it. Without the ability to accurately calculate CLV, you won’t know if your efforts are succeeding. It also limits your choices when it comes to strategies you can deploy.
The problem is that it's a massive challenge to calculate CLV accurately. You are essentially using historical trends to predict future behavior. Going beyond a rough estimate of CLV to dive into individual and product-level analysis is crucial to success. Fundamentally, mastering CLV needs more than spreadsheets and pivot tables to make it work, and it’s not information provided in Amazon Seller Central or Vendor Central either. At Nozzle, this is something we help brands with and have created analytics tools specifically to deliver robust CLV calculation. Get in touch if you want to learn more.
Breaking apart data sets
Cohort analysis is a specific feature of our approach to CLV at Nozzle. This tracks how a group of users behaves over time. For example, we can compare people who first converted in Q1 of 2020 with people who first converted in Q1 of 2021. By assessing their respective first and second quarters, we can see what is trending and what behaviors are changing. Perhaps prices have softened, or product mix changed, and you can react accordingly.
Suggested reading: For an in-depth guide on how to calculate customer lifetime value, check out our blog — Can CLV Calculations Ever Be Accurate?
2. Prioritize high-CLV products with PPC ads
With a grasp of product-specific CLV, you get a picture of the products that are the most valuable over the long-term. This includes products that:
- Lead to repeat purchases of that single product.
- Act as gateway products that lead customers (on average) to purchase a wide range of products from your portfolio — either over the short- or long-term.
By targeting both of these types of products with PPC ads, you will increase your overall CLV. Winning PPC placements for these products will also help grow organic traffic for these listings because of the positive feedback look that high-converting PPC placements have on organic rankings.
Targeting high CLV products is also a critical step for using CLV effectively — and can open the door to more aggressive bidding in order to advance other PPC goals. However, solely from the perspective of increasing CLV, by targeting these products you will grow CLV over time — helping improve the overall profitability of your brand.
The two main strategies for targeting high-CLV products include:
- Targeting competitor terms: Target your competitors on a branded level using Sponsored Product and Sponsored Brand ads. This is a particularly good idea if your products are cheaper, have better reviews or faster delivery times than the competition.
- Target non-branded keywords: Competitor targeting is important, but so is targeting high-value non-branded terms. Again, this is the targeting that can also help you drive organic traffic using PPC.
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3. Encourage brand-loyalty and retarget customers
Fundamentally, CLV is a measure of customer loyalty. Amazon provides a wide range of options that will help you cultivate a brand presence and customer loyalty across the platform. You need to use all of these levers at your disposal to maximize your CLV, and grow your brand.
Sponsored ads and Store
Stores and Sponsored Brand Ads let you share your value proposition and tell your story to Amazon shoppers. When they click on your brand logo, they're taken to a Store or custom landing page. When they click on a product in the ad, they're taken to the product page. You can even run ads off of Amazon on Facebook and Instagram and use an Amazon tag to track the return to your Amazon Store.
To increase CLV, you can run special campaigns tied to a particular season or event and consider temporarily reducing the price of your best-selling items. You can look at special promotions to reward frequent buyers by providing a digital coupon, giving a percentage off or free shipping.
Master the art of bundling
Bundles can help drive up CLV. They improve average order value (AOV). You can also attach high CLV-products to bundles — helping encourage repeat purchases. As we’ve mentioned, CLV calculations also help you design profitable bundles by bundling products that customers often end up purchasing together anyway. If you want to learn more about bundling, check out our guide — Amazon Product Bundling Strategy Ready for 2021.
Time your retargeting
By analyzing buyer behavior, you begin to understand the interval between repeat purchases. This helps you time remarketing campaigns. Sponsored Brand ads provide unique retargeting features akin to programmatic advertising. These can be used within your broader CLV strategy — helping target users based on their search history, or having viewed or purchased your products.
Build an online presence outside of Amazon
To increase your CLV, at some stage, an Amazon shopper has to become your customer and not just Amazon's. It would be best if you had an external presence on the web. Once you have this presence, you can carefully start funneling people from your Amazon marketplace profile to your website and vice versa — capturing your own customer data and communicating directly.
Bonus idea: Get on socials, get on Amazon Posts
Another surefire way to increase your Amazon CLV is to hop on the latest feature of the Amazon marketplace — Amazon Posts. While this feature is still in beta-testing, and so only available to US Vendors that are on the Amazon Brand Registry, it's an important future-focused opportunity to explore.
The idea behind Amazon Posts is to allow brand-registered Sellers to utilise the same promotional strategies as the ‘influencer culture’ across social media. After all, 54% of US shoppers claim to learn about a product on social media before purchasing, so this is a critical opportunity to harness. This way they are more readily able to curate a platform that allows Sellers to post product-related content, real-time lifestyle images and brand story collateral. Amazon Posts are entirely free, so make sure to take advantage of this feature when you can and drive results, including:
- Brand awareness and loyalty: If your customers follow your company page on Amazon Posts, they will be literally following the brand journey you decide to put them on. This level of trust and honesty Amazon Posts cultivates between company and customer can have long-term benefits and helps provide “social proof” that your products are functional and desirable.
- Product discovery: Currently, there is a chance that your customers, while loving your product, could be unaware of the other products in your line. Through Amazon Posts, customers can browse your Posts freely — giving them the autonomy to explore your entire product line and choose to interact with your brand.
- Performance insights: Amazon Posts generates mounds of data that, when analysed properly, will inform you of your post performance. You can use these insights to optimise your Amazon Posts strategy, and your wider business-level and marketing decisions.
Amazon Posts also give you a direct avenue to connect with your Amazon customers — which is uncommon for the platform. Collecting this information adds to your broader contextual understanding of both customers and products — helping you increase CLV while creating CAC (customer acquisition cost).
Data is the key; the right software can help
A CLV-enriched viewpoint gives you an edge. It provides:
- Higher profitably customers
- Longer-term context for your ACoS strategy
- The best possible insight into customer acquisition costs
- Insights on where you can best place your ad spend
But you need data analysis tools to ensure your CLV is as accurate as possible and that insights are being generated and acted upon. With analysis presented in automated dashboards, the struggle of combing through spreadsheets and creating pivot tables is forever removed. You can get straight to insights, take action, and measure and monitor the results. That is exactly what we deliver at Nozzle.
At Nozzle, we have the tools and experience to really improve your CLV. Get in touch and we can share our CLV experiences and outcomes. For more research, check out our ebook How to Make Sense of Your Amazon Customer Data.