The CRV formula and three ways to increase customer lifetime value though I’ve run across a ton of formulas for CLV most with merit and many quite complex. Many of these formulas are for a narrow audience for this course, we’ll focus on what
I believe to be the simplest and most actionable formula available that can apply to nearly any Shopify or Shopify plus business and uses only three averages. Here’s the simple calculation. Your customer lifetime value equals your average order value
times your average number of orders times your average percent profit margin. I’ll say it again in your customer lifetime value equals your average order value times your average number of orders times your average percent profit margin.
If I went to your Shopify store and spent exactly $20 every time I came in came in 10 times over time. And the average profit margin you made off of me was just 35 percent. Noting of course, that average retail profit margins are typically more than 50% My customer lifetime value
to your brand would be $70. Now what would you do if you knew that every customer that converted on your Shopify store was worth $70 of profit to your business. Would that knowledge enable you to invest in your existing products and services
to make them as up to date and desirable as possible. Would it enable your business to invest in new complementary or supplementary products or services that your customers would rave about. Would that knowledge enable you to add more benefits to your employees to give them a better standard of life.
Would that knowledge let you scale up your affiliate program like you’ve never done before. Would it. Let you invest in a new Amazon store. Would it. Let you invest more in other acquisition channels, such as search social shopping display or maybe invest in own channels like SEO CMO CRM and email
and world class creative services and marketing science. Or now that you’re finally measuring customer lifetime value. Do you have the burning desire to maximize it first. Let’s explore three ways to increase customer lifetime value. And examples of what an impact in each of these three
categories can have on your brand and life back to our formula. We know of course, from our example that me spending $20 10 times at 35% profit margin puts $70 customer lifetime value in your pocket right. What if we just increased average order value by $5.
How big of an impact on customer lifetime value would an increase in average order value of just $5 be on my customer lifetime value of $7 to you. Would you be surprised to know that IT would be a whopping 25 percent increase to $87.50.
Once again with such a minor change in such a major difference would it change that your deck diary of your brand and life. If your profit per customer increased 25% across the board. Since I know the answer is absolutely yes. Andrew will move on and we’ll go through these next two examples
quickly. If we took our original formula again $20 10 times at 35 percent profit margin. What if we just increase the average number of orders by a measly two orders. If I just purchased 12 times rather than 10 times over my lifetime, at the same 35 percent profit
margin. Do you think it would make a big difference if you said, absolutely yes. Andrew you were correct that minor increase increases customer lifetime value by a very attractive 20% from only $70 to a big and beautiful $84 in customer
lifetime value. If net profit per customer increased 20% for you. You would be thrilled right. Perfect back to the formula. And this 1 May feel easier or not. But let’s see if we just take our original formula of $20 average order value for 10 purchases at 35 percent
profit margin and increase the average profit margin an additional 10% to 45 percent. You probably know by now that this too makes a big impact to the tune of our largest increase from the examples of a huge 28.5 percent in your pocket
amounting to another full. President Andrew Jackson $20 bill floating into your bank account. These are big numbers right. Any one of these factors improving even only as slightly as described in these examples could change your business forever right. Don’t worry.
I don’t need you to say it. Yes And absolutely yes. Andrew, thank you. Now one if we took our original customer lifetime value formula and increased all three factors of impact you guessed it blowing. If we increase average order value from $20 to $25
increased average number of orders from 10 to 12 an increase average percent profit margin from 35% to 45 percent. Are you thrilled to see how much extra and net profits per each customer would be well please wait no longer with an extra $5 orders and 10% you’ll
have increased your customer lifetime value by an astonishing astounding amazing 93 percent. That’s right. You’ll nearly double the net profits. Take a tiny $70 into an enormous $35 in sweet, sweet customer
lifetime value. I hope you’re dreaming now dreaming of spending an extra 93 percent of profit in customer lifetime value on vacations trade shows, events employees or the earned and owned marketing channels that can turn the wheels of productivity into wealth for you and your Shopify store.
Next, we’ll dive straight into the specifics of how you can grow your business. Cultivating loyalty, and increased customer lifetime value through increasing average order value increasing average number of orders and increasing average percent profit margin. Buckle up, and I’ll see you on the next module.
