Some online customers are better than others – there, I said it. Shocked? You shouldn’t be. These are the customers that spend more money, buy more often, and think your products and services are fantastic; they’re your unofficial brand ambassadors and their continued support for your business is essential to maximizing revenue potential, particularly over the long-term. But just how important are these “best customers” for eTailers as we push forward in 2014? How do you properly identify this group and then actually retain them? To tackle these questions, I joined forces with big data pro and Content Marketer Janessa Lantz of RJMetrics, an emerging business intelligence SaaS based out of neighboring Philadelphia that has partnered with a number of impressive brands that include Bonobos, Fab.com, Frank & Oak, and Threadless, among others.
Part 1: Janessa
What Big Data is Telling Us
In our 2014 RJMetrics eCommerce Benchmark Report, we analyzed customer data across hundreds of our eCommerce clients to find the answer to the question posed earlier: just how good are your best customers? The answer is profound.
Wow, right?! This group isn’t just slightly better, they’re far and away your most important customer segment as they spend 30x more than your average customers over the course of their lifetime. They also make 4x more purchases than your average customers and spend 5x more per order. To put this all into perspective, your best customers spend as much as the entire bottom half of your customer base over the course of their expected purchasing history. If you’re ever going to lose a customer, these are not the ones that you want to lose.
How Do You Identify The Best of the Best?
Step 1: Calculate Your Store’s Average Customer Lifetime Value (CLV)
To find your best customers, you’ll need to look at more than just your “biggest orders ever.” This isn’t about one-off purchases; this is about finding (and keeping) the kind of customers that buy again, and again, and again. For this, you’ll want to look at customer lifetime value (CLV) which is an absolute paramount metric to use for calculating marketing ROI, finding the needle in the marketing spend haystack, and identifying your very best customers. It measures the profit that your business makes from any given customer over the course of their purchasing history. While this may be a particularly extensive exercise if you have a large customer database, it’s an important one and worth the resource investment. This formula can be equated in a few different ways (and also vary slightly by industry), but here’s a simple B2C version if you’re new to the concept:
CLV = (Avg. Order Value) x (Orders Per Year) x (Avg. Retention Rate)
Start by taking the data from your entire customer database so that you can calculate an overall average customer lifetime value – this will serve as your basis for comparison later on.
RJMetrics Pro Tip: Want to take the above customer lifetime value formula a step further by including factors such as Customer Acquisition Cost? Check out our sweet (and totally free) CLV Calculator; sneak peak below:
Step 2: Segment Individual CLVs to Identify Outliers
After calculating your overall average CLV for your store’s database, you’ll want to dive into individual CLVs by creating customer segments. How you develop customer segments and dive into the data at the individual customer level is an art form and can be daunting depending on the size of your database. If you have a tool that can properly leverage consumer data for intelligence reporting (cue my RJMetrics pitch), this is definitely the time to use it. After your segments are created, and you’ve calculated CLV at the individual level, compile a list of your best customers based on those furthest north of your average mark from step 1. Treat this list like gold and know that if you lose just one of these customers, you could take a major hit to growth long-term and wind up looking like this guy…
Step 3: Study Your List of Best Customers
Once you know exactly who these best customers are, it’s time to get cozy with them. Use quantitative data to understand the products they purchase, acquisition source, their behavior patterns on-site, etc. Likewise, don’t overlook the value of qualitative research. Take some time to survey them, pick up the phone and give them a call or even send a friendly email. Make it your top priority to understand why these customers love you so much and start thinking about how you create that same attachment in other customers. Bottom line: the more patterns that you’re able to identify in these top customers, the easier it will be to recreate this process and recruit other customers into this top tier.
Part 2: Back to Tom
Retaining Your Best Customers
To piggyback on the research from Janessa and the folks at RJMetrics, I just wanted to list a few practical tips for retaining your top customers once identified.
Tip #1: Give ‘Em VIP Treatment
We’ve had several clients here at Groove upgrade their top customers to a VIP -like group based on what we’ve been able to collectively determine best customer qualifications. Perks for these groups have included: Free Ground Shipping, $5 Flat Rate Shipping w/ No Order Minimum, and Free Samples & Branded Giveaways. While these have typically been small investments from a monetary standpoint for our clients, that little “extra” always seems to garner extremely positive feedback from the customers, hence why big players like Zappos have been championing this system of surprise upgrades for years now. Think you’re too small to do the same? I challenge you to find your top few customers, offer them a perk, and then evaluate the response. While it might take some trial and error with the perks offered to see how these customers respond, it should serve as an extremely enlightening exercise.
Magento Pro Tip: Are you on Magento and have already figured out how to create new customer groups but feel limited by the promotions that you’re able to offer out-of-box? Don’t feel like doing everything manually? Consider checking out these extensions:
J2T Auto Add to Cart – allows you to automatically add products to a customers’ shopping cart based on rules and conditions that you create (i.e. a free branded giveaway if a customer logs into an account that’s part of your VIP group).
Special Promotions by Amasty – offers a ton of new promotional opportunities and rule combinations; see sample of new rules available below:
Tip #2: Reward Referrals
Love the idea of turning your best customers into brand advocates? Maybe they’re already referring you to friends but you need a way to reward them so that they continue to do this? Well if you’re targeting a sophisticated platform approach to this, you need a tool that can easily integrate with your website, preferably in multiple locations (i.e. product pages, CMS pages, and your post-purchase page) and offers clean social sharing to make the referral process as seamless and painless as possible. My guess is that you’ll need a third party platform for this.
Magento Pro Tip: Depending on your business model and how involved you want to get, you may want to consider a point-based reward campaign, in which case you can find excellent platforms in SweetTooth and 500friends.
Another option, that removes the whole “point system”, is a platform called FriendBuy, Why do I like these guys? Aside from partnering with some serious brands that include Dollar Shave Club, Warby Parker, and Birchbox, I’ve had an absolutely great experience implementing the platform on Magento. Setup is minimal, their template offerings are extensive, conversion reporting is great, and social sharing is made extremely simple. Check out an example of FriendBuy in action with our client Dormify (this is taken from a CMS landing page, though we do have links to the widget on product pages and their post purchase page as well):
Tip #3: Get Personal
My roommate has placed several orders over the last six or so months from the UK-based Men’s Clothing shop, Charles Tyrwhitt, and absolutely loves their shirts (he has roughly 10 now). With his latest purchase, he received a handwritten note from their Director of Customer Service thanking him for the order as well as his brand loyalty over 2013. The message was short but extremely effective — my roommate placed another order a week later because of how impressed he was with the level of personalization and proactive outreach. Being the eCommerce nerd that I am, I ran a search query on Google to see if this “letter” was something that Charles Tyrwhitt has done before and/or does on a recurring basis. What did I find as one of the very first images listed in results? Brace yourself…
#AreYouKiddingMe? I could not have been more impressed here. The quality and level of personalization coming directly from the CEO of the company (who also doesn’t even MENTION his title) coupled with the free gift voucher is just a double whammy of epic proportions. Could he have written 100 of these same letters and just swapped out customer names? Does the gift voucher really only equate to just $13.54 in USD? Could this have actually been written by an entry-level assistant? Yes, yes, and yes. But still, come on… this is impressive. Consider writing something along the lines of the letter above and adding it to a few of your next best customer orders — that 30 minutes of your time should pay off plenty in future business.
While this is by no means a complete list of strategies for retaining some of your best customers, they’re a few that I find to be effective and relatively easy to implement. Have any questions about the data presented by Janessa early on? Have any feedback and/or success stories on retention strategies? Make sure to drop a line below in the comments section!
Co-blogger Janessa Lantz is a Content Marketer at RJMetrics, an emerging SaaS business intelligence platform for eTailers, with clients that include Bonobos, Fab, and Threadless. In her spare time, she’s usually reading, napping, or delivering spontaneous lectures on her current topics of interest.