How to Use AOV and Customer Lifetime Value to Increase the Revenue

Every software company out there is seeking ways to boost its earnings. It's sometimes a matter of cutting back costs and running an efficient, less expensive machine. In other instances, you're trying to get more buyers and increase your customer base. But sometimes maximizing profits is everything about making the most possible value from the sales you already have.

In this situation, you have two options available: (1) you could convince your customers to pay more on each order (increase the value of their orders (increase Average Order Value) and (2) boost the frequency at which your customers purchase from you (increase the value of their lifetime purchases).

We'll discuss the ways you can utilize the Average Order Value (AOV) as well as the Customer Lifetime Value (CLTV) to increase the amount of money you earn.

What is AOV?

Average Order Value (AOV) is the average total of every order placed by a retailer during a specific amount of time. It is the amount that represents the average value spent every time a customer place an order via a website or mobile app.

This metric is a key measurement of the performance (KPI) that your business should measure to get more insight into your customers' buying habits. Like other key metrics, you can track this for any time period... although many companies track the changing month-to-month average.

Why should you care about AOV?

Attaining an AOV higher implies that you're making more revenue for each purchase, which boosts profits and effectiveness. Also, it means you'll need more customers to make the same amount and this results in lower total costs of acquisition.

Another reason to increase your AOV is that the increased revenues give you more financial ability to gain many more customers. Thus, the cycle goes on and more customers will spend more money in your store which means you have more money in your advertising budget to gain more customers.

How do you calculate AOV?

The formula used to calculate the value of an order is pretty simple:

Revenue / # of Orders = Average Order Value

Remember that AOV is calculated based on the amount of sales per order, not sales per customer. Although a client may purchase from your shop multiple times Each of these orders will be counted as a separate purchase.

How do you increase AOV?

One of the most effective strategies to boost AOV happen at the time of check-out. Below are a few of our favorite best practices:

1. Cross-sell

2. Popular products

On your cart page, show the most popular products in your store. Sometimes, showing your customers the products that other customers are purchasing can be the motivation for them to click "add to shopping cart."

3. Upsell

4. Bundle

If you have several or three products that are complementary you can bundle them for a discounted cost. One of the benefits of this method is that the customers think they're making money when they spend more, which is a win for everyone.

5. Loyalty program

The benefit of loyalty programs is that customers will likely spend more money on a return shopping trip to your store. This also means that your customers will actually return to your shop and this increases your customers life-time worth (CLTV).

Talking about CLTV ...

What is CLTV?

The Customer Lifetime Value (CLTV) is the revenue or profit that is that a single customer earns throughout their commitment to the company.

Why should you take an interest in CLTV?

CLTV helps determine your Cost to Acquire a Client (CAC). The rule of thumb is that you should not spend more than 1/3 of your CLTV in order to find new customers.

Since it's so expensive to find new customers it's essential to keep customers coming back to your store. Repeat customers create the highest value and require the least amount of money and effort.

How can you determine CLTV?

To get an accurate number for your CLTV It is vital to be strict about precision, taking into consideration the actual cost of goods, actual delivery costs, transaction fees, discount codes, and refunds on every purchase. Be sure to not include ad spend when calculating your CLTV.

There are several ways to figure out the actual CLTV ...

Step 1. The Gross Profit of CLTV =
Revenue Revenue (Cost of Goods + Shipping +Transaction Fees +Discount Codes + Refunds)

Step 2.
Customers Value = Profit (from the above) + Annual purchase frequency

Step 3:
CLTV = Customer Value (from above) + Average Lifespan of Customer

What can you do to increase CLTV?

Besides providing amazing products or services that customers can't get enough of, here are some tried-and-true strategies to boost customer life value

1. Brand loyal

Make sure your business is able to inspire the loyalty of customers. This is a bit more difficult to do than it is, but when you create an item or brand that is unique or better than the other brands, consumers will be more likely to come back to your business. It's sometimes just a matter of creating relatable and conversional content on your website and social media that allows customers to connect with your brand.

2. Customer service

3. Loyalty Discounts

Offer discount codes in confirmation emails to encourage customers to return to your store. The motivation behind discount codes should be "the greater the amount they spend, the more they'll save."

4. Subscriptions

This is probably the best way to attract repeat customers because repetition is built into the product. Consider offering subscription-based items or services to see how your customers react to purchases that are recurring.

5. Simply the Purchase Process

The more simple the conversion process easier it is for customers, the more likely they are likely to purchase from your company again. Make sure your checkout process is properly set up -- it can't be complicated or long as well as that your website and product pages are easy to navigate.

When implementing these strategies be sure to keep the client in your thoughts. Make sure you create a seamless customer journey which will encourage them to keep coming back, and provide them with the information they need to make the most informed buying decision based on their requirements. If you can do this then the rest of your plan will be in place, and you'll begin to see profits increase.