How to Calculate Customer LifeTime Value on Amazon
Finding the right customer at the right time can be difficult. Allocating the right amount of resources to customer acquisition tactics can be even tougher. Luckily, there’s a way to make that process easier through Customer LifeTime Value (CLV).
CLV is a growth metric used to predict the net profit of a future relationship with a customer. Calculating it for your Amazon channel isn’t an easy process, however, the data is important to know when identifying opportunities and challenges across your entire business.
Knowing what products will generate a maximum CLV can help direct your entire Amazon strategy. It can help you make business decisions about sales, marketing, product development and customer support with more confidence. Through calculating CLV, you can better manage things like customer acquisition cost, customer relationships and sales trajectories.
How to Calculate Your Amazon CLV:
Before calculating your CLV, you need a few sets of data:
- Customer Acquisition costs
- Profit for the time period you are evaluating (month, quarter or year)
- Amazon fulfilled shipments report data. To find this data in Seller Central, go to your Reports > Fulfillment > Sales > Amazon Fulfilled Shipments and select the dates you are looking for. Pro tip: collect this data on a monthly basis so it is readily available.
GRAPHIC: Profit x Lifetime Period – Acquisition Cost = CLV
Pro Tip: Sometimes customers only enter their first name in their Amazon account. This can result in incorrect data, where such customers may be marked as “Repeated” if they have the same first name as another customer. To avoid this issue, check if there are customers with first names only before doing a Pivot of the “Buyer Name” column. If there are customers with first names only, filter the ‘Buyer Email’ or ‘Buyer Shipping Address’ and the ‘Buyer Name’ to check if the buyer actually purchased twice. If there are different Buyer Email or Shipping Address values, then it’s a different customer.
How to Use Your CLV:
Your CLV data can be used to maximize your sales in many ways:
- Compare your CLV on Amazon to other channels to gauge Amazon efficiency
- Track how your CLV changes over time to see seasonal trends
- Implement DSP campaigns to retarget customers
Understanding CLV allows you to focus more time and energy on high-value customers, increase your ROI and improve your relationships with long term customers. Overall, it lets you win over customers that really make a difference in your business in the long run.