The Customer Lifetime Value It is the expected and predicted monetary value that a customer can generate throughout their relationship with an online store. Basically it is a prediction that measures the profitability of customers.
The Pareto principle states that for many events, approximately 80% of the effects come from 20% of the causes. If this principle is applied to Ecommerce, we have that 80% of the income can be attributed to 20% of the customers. While it is true that the exact percentages may not be 80/20, it is a fact that some clients are worth much more than others.
Therefore, identifying those valuable customers It can be extremely beneficial for e-commerce businesses. Now, taking into account the value of the customer's lifetime, you can change the way of thinking about the consumer acquisition.
Instead of considering how to get a large number of clients and how cheap it can be done, the value of the customer's time can help determine the appropriate way to optimize acquisition expenses for maximum value rather than minimum cost.
Under a cost reduction strategy You might think that the best option is the one that leads customers with the lowest cost. The reality is that customer acquisition cost is only half of the equation. It is also necessary to consider that Lifetime income of customers from each of the channels may be different.
When considering not only the acquisition cost, but also the value that the customer brings to the business, the acquisition strategy can be adjusted and deliver better results for less money.