LTV, or customer lifetime value, is a key metric in ecommerce that measures the total amount of revenue a customer has generated for a brand. Merchants knowing their LTV is important because it allows ecommerce businesses to make better decisions about customer acquisition, retention, and pricing. In this article we partnered up with Swanky to give you a breakdown on how you can do this yourself.
Before we dive in though — here are some specific reasons why LTV is important in ecommerce:
🎯 Better customer acquisition decisions: Brands are looking to stretch their budgets and get the most out of their ad dollars. Knowing the LTV of customers can help merchants build audiences or target look-a-like audiences that are more likely to engage and buy again. One example is when merchants know the LTV of their customers is high, they generally are willing to spend more money upfront to acquire them because they know they will generate more revenue over time from that customer.
🛍 Improved customer retention: Understanding LTV can also help ecommerce merchants grow and improve their customer retention. By identifying customers with a high LTV brands can create targeted retention strategies or campaigns to keep these customers engaged and coming back for more. We share some ways to take action on this below.
💸 Pricing decisions: LTV can also help brands make better pricing decisions. If the LTV of customers is low, brands may need to lower their prices to remain competitive and attract more customers or build a strategy to move those customers to a higher AOV or priced product. On the other hand, if the LTV is high, merchants may be able to charge a premium price or offer a subscription because customers are willing to pay more. These are great things to A/B test on your website or ad campaigns to see how your low or high LTV customers respond.
Overall, LTV is a critical metric for ecommerce businesses to track. The Littledata app does automatically through our Shopify/BigCommerce to Google Analytics 4 connection. Which provides valuable insights through accurate attribution that shows customer behaviour and lifecycle events. This tracking helps merchants analyse and create action plans for their customer acquisition, retention, and pricing.
What LTV tracking looks like in action by setting up an audience based on high customer values
Recently we caught up with Tom Cox of Swanky, a leading Shopify Plus agency with offices in the UK, Australia & France who said, “By tracking CLTV, you can see which customers are generating the most value for your business. This information can be used to target your marketing efforts and sales strategies more effectively. Importantly, identifying high value customers makes it easier to target them with marketing campaigns.”
LTV is an important focus for Swanky and their clients but how do they execute?
Here is one way they use Littledata to drive their LTV efforts in Google Analytics 4:
1. Create custom dimensions in GA4 to report on Customer Lifetime value of users ( https://help.littledata.io/posts/customer-lifetime-value-google-analytics/)
2. Calculate the LTV of your top 10% of customers.
3. Create an audience in GA4 by going to Admin → Audiences → New Audience
4. In the audience definition, choose the parameter lifetime_revenue_littledata
5. Then using the LTV figure you calculated earlier, specify a filter to only include users whose LTV is higher than that value
6. You can now use this audience to sync to Google Ads, and also understand which channel acquired those customers. Using behaviour reports, funnels and path exploration reports you can observe how valuable customers are interacting with your brand
There are several reasons how this targeting can really fuel growth for brands but as we’ve seen the global market dictate—brands are focusing heavily on their customer retention rates this year. On the topic of retention Tom said, “By understanding why high value customers have churned, you can take steps to prevent them from leaving.” tactics like, “loyalty programs, improving customer service experiences, and providing more personalised marketing” you can really move the needle.
If you’ve yet to create an audience using the handy walkthrough above now is the time to give it a go. Merchants who know their customers LTV and can attribute the channels they are coming from such as organic or paid performance like Google, Facebook, Pinterest, and TikTok ads will have an edge on retargeting and creating lookalike audiences based on accurate data and analytics.
How LTV and CAC enables better decision making
No matter how good your customer acquisition strategy is, all marketers are looking to increase LTV of their customers and decrease Cost of Acquisition Costs or CAC for short. For those new to the term it is the total cost that a business incurs to acquire a new customer. It can be calculated by dividing the total cost of acquiring new customer over a specific period (such as a month or a quarter) by the number of new customers acquired during that same period. This will give you the average cost of acquiring a single new customer.
For example, if a DTC brand spends $10,000 on marketing and sales activities in a month, and acquires 100 new customers during that same period, the CAC would be $100 ($10,000 / 100).
This is a big topic among marketers looking to optimize their existing channels and ad spend. When chatting about CAC Tom mentioned, “by knowing how much it costs to acquire a new customer, you can make more informed decisions on how to allocate your marketing budget” and as many marketers know running campaigns proof is in the pudding when it comes to forecasting and maintaining ad budgets in any organization.
Tom recommends those using Littledata to head over to GA4 and use the parameter purchase_count_littledata that is automatically generated by Littledata’s tracking script!
1. Create custom dimensions in GA4 to report on purchase_count_littledata parameter ( https://help.littledata.io/posts/customer-lifetime-value-google-analytics/)
2. In most standard reports, there is an option to “Add comparison”
3. Then choose the purchase_count_littledata dimension (that you created earlier), and choose dimension value 1 to select only new customers.
4. The report will now show the comparison between the segments you have created
Knowing the costs and the channels that contribute to that first time customer can be an incredibly powerful tool and insight to campaign management, acquisition strategies, and a/b testing of new tactics or channels. There is a fine line betweening knowing your channels which many marketers do—and having the data to back it up!
A few points to take away on the importance of CAC for your brand:
- Helps measure effectiveness of campaigns
- Allows for better budgeting and financial planning
- Helps determine LTV of customers—allocate those resources accordingly
- Helps Identify areas of improvement—prevent high CAC to wrong target customer
We would be remiss if we didn’t highlight a real brand who has put these solutions into practice and at scale—Geologie. Geologie’s implementation of Littledata has yielded impressive results for their subscription business. Over the past three years, they have experienced continuous growth of over 150% without any additional expenses on customer acquisition. Moreover, their data-driven approach has led to a remarkable improvement in retention rates, increasing by 25% year-over-year. Clearly, Littledata has been instrumental in driving Geologie’s revenue and LTV to new heights.
Swanky reminded us that most of the data is right in front of us and while we can take action now it’s important to view how CAC is changing both on the regular and over the course of time.
Knowing what channels are driving high LTV customers isn’t a cure all but it will give you the insights you need to target, build, and manage effective campaigns. For many—this is one of many data problems blocked by lack of an inhouse data team—fortunately agencies like Swanky have the experience to partner with your brand. We at Littledata couldn’t ask for a better crew — they put into action the accurate data and tracking we provide for merchants of all sizes across the globe.
For more information about Swanky you can visit their website. If you have any questions on tracking, attribution, or otherwise please reach out to Littledata for a free data chat. In the meantime, stay curious and be inspired by data. It is one of the best ways to understand your customers.