Author: Keith Perhac

It’s a simple calculation really,

number of customers × spend per customer = revenue

Yet it can still lead us astray.

Optimizing for quality, not just quantity

As marketers, we have traditionally focused on bringing in more customers. It’s all about attracting visitors that convert, as many customers as possible.

Spend per customer gets mostly left to chance. Maybe we put some effort into promoting products that are more expensive or that have a higher profit margin. But after that initial purchase, we lose enthusiasm for optimizing touchpoints to increase customer spend.

It’s common for marketers to have a PPC manager who spends 5 days a week working to bring in customers. Meanwhile, aspects such as the follow-up emails get set to endlessly repeat, or become someone’s small weekly blast.

Part of this bias is due to the data.

Numbers such as ad clicks are easy to measure with rapid changes in performance, so optimizing them feels more worthwhile. In the background are stats such as lifetime value or upsell performance. They are harder to measure with tools such as Google Analytics and require waiting weeks or months for changes to appear, so less attention is given to optimizing them.

“One of the quickest ways to add positive cash flow to your business is to figure out how to turn more of your one-time buyers into repeat customers”

Drew Sanocki, CEO Growth Engines

But a new range of tools and techniques are changing that. You can now directly test strategies for increasing the spend per customer, giving huge opportunities to boosting revenue.

Two knock-on effects from increasing your lifetime value

Not all customers are created equal. According to the Adobe Digital Index, 41% of revenue typically comes from 8% of visitors.

It is easy to think of the 80/20 rule as one of those inevitable laws of nature that you can’t influence. But, what if you could increase the number of big spenders?

On average, only 20% of the revenue from each sale is profit, with a whopping 15% going to marketing. That means if you can increase the amount of second purchases without big marketing spend, that second sale is almost twice as profitable.

Meanwhile, increasing the average order value or amount of repeat purchases give you the ability to outbid competitors while staying profitable.

Two paths to boosting customer spend

There are two main approaches to boosting the amount spent per customers

1. Increase the average order value (AOV)
2. Nurture customers to increase lifetime value (LTV)

Most companies already try some tactics to increase both. They might have an “also bought” section along with sending a monthly newsletter to past customers about new products.

But there is also a whole range of underused tactics.

So, let’s take a look at some alternatives, along with suggested ways to measure their impact on optimizing each one or test which is best.

Tactics to increase average order value

If you use a platform such as Shopify or WooCommerce, then plugins are available that aim at boosting AOV. They modify the buying experience, adding extra suggestions or buying opportunities. The most common top of funnel “buying opportunities” are the cross-sell and the post-purchase upsell.

Cross-sell complementary products

Cross-selling is the classic “would you like fries with that?” add-on. It is all about suggesting extra items that would complement the one a customer is interested in.

Cross-selling: suggesting a second product such as a relevant accessory

Amazon achieves this with their “frequently bought together” suggestions such as the bracket for the TV shown above.

Companies such as Wiser give any store the ability to add intelligent recommendations. From their case study with Kappa they describe:

“Kappa displays a ‘complete the look’ section on its product pages. In this section, it recommends products that fall under the same category the shopper is interested in but is from a different range.

“For example, if a shopper is looking for track pants in sportswear. You can use the ‘complete the look’ Wiser widget to recommend buying a t-shirt that would match with it.”

This one change gave an 11% increase in AOV

Post-purchase offer

Post-purchase offers are all about creating a second buying opportunity on the thank you page. The key advantage is that they don’t impact the original purchase as they don’t disrupt the primary sales funnel.

With tools such as CartHook, merchants see an average 10% increase in revenue!

They let merchants easily set up post-purchase funnels, customizing options such as timers and special discounts to encourage the sale. They then include some analytics to help users track the changes to AOV.

It is best to test whether a range of price points for the post-purchase offer. A small $15 product might convert better, whereas a $200 premium follow up could bring in more revenue.

How to measure product combinationsIf you want to measure which products are commonly bought together then check out SegMetrics. You can filter reports to see only customers whose purchases include a certain product. That lets you see what other products they bought either on that visit or the next time they came back. That lets you plan tactics to increase the AOV, or see which products would be best to promote in follow up emails.

Going for the long game

So you bought in a new customer, fantastic! That’s great, but it doesn’t mean you can get complacent.

It’s easy to send out the usual stream of coupons and products announcements, with the risky assumption that some customers will inevitably come back to make more purchases.

Slacking off on nurturing new customers is a huge missed opportunity. Repeat customers typically spend more than new buyers, while bringing in higher profit margins from the reduced marketing costs. Even converting a few more percent of customers into repeat buyers can bring huge profit increases to a business.

Increasing lifetime value is all about building relationships with your customers.

Unlike AOV, it’s what happens after the purchase that counts. Do they have a particularly great experience with your product? Do you help them learn more about the business? Do you make them feel valued?

Or, do you only send them emails pushing them to buy the product, reducing the relationship to just a financial one?

Build the connection

Lowering the price via sales and discounts is only one way to increase the buying motivation.

You can also help customers appreciate the quality of your product…the reasoning behind it…the ways it can be used…how it differs from competitors…why they should stop putting off their decision.

Think of your email sequence as a chance to share details about your store that buyers wouldn’t otherwise find out. It’s about making the reader feel valued beyond the purchases they make, helping them share your vision.

Instead of adding the pile of coupons in their promotions tab, try a sequence based on building the brand perception. You could share information such as:

• The origin story of how your store began and how you got to this point
• Behind the scenes details of how you do things differently
• The values of your business and what they mean for customers
• Relevant advice and tips for getting the most out of your products
• Interviews with staff, customers, or industry experts

SendPulse shared a great example from Brooks Brothers, it builds the status of the brand through sharing the origin story before going on to share more recent innovations. It is not aimed at selling a specific product but instead building general brand perception.

The “winback” campaign

Every company has inactive subscribers. They’re the past customers who haven’t visited your website, clicked an email link or made a purchase in a long while.

The aim of a winback campaign is to recapture the attention of these past customers, to try and get them back as returning buyers. They are highly effective, with research showing that 45% of recipients who received a win-back campaign read a subsequent message [source: Martech].

Klaviyo recommends testing a short series of 2-5 emails, where the subject lines with a personal feeling such as “We miss you,” “Come back,” or “It’s been a while”.

These subject lines can lead to content such as offering discounts, information about new products or educating the customer.

You don’t have to aim to get an immediate sale. Try to build the curiosity back up, get the reader engaged so that they will make a purchase in the following months. To test which email series is most effective, measure the LTV associated with each one either by manipulating data from your existing platforms, or with a tool such as SegMetrics.

Taking it offline

Have you considered sending physical mailouts instead of only email blasts?

With prices as low as $0.70 per piece, it works out cheaper than clicking a remarketing ad. Plus, recipients get an item they can hang on to as a constant reminder to revisit your store.

Postalytics have a fantastic case study around running a winback campaign like above but with direct mail. Zogics, a gym company, sent the postcard below to past customers.

They used the Postalytics software to automate the process, integrating with Hubspot so that a postcard was sent to any customer who went quiet. The results were a 500% increase in ROI and an order volume increase of 140%

The wider statistics also back up the approach. For example  “59 percent of U.S. respondents enjoy getting postal mail from brands about new products.”

Upgrade the experience

Bringing in repeat sales is about more than just product quality. What else could you be doing to upgrade the customer’s experience? It could be

• Premium or sustainable packaging
• Faster delivery (even for free shipping)
• Including small freebies or gifts

For example, Aeropress includes a sachet of ground coffee with each purchase. That gives buyers the opportunity to immediately put the product to use. This is backed up by research saying: 

“60% of online shoppers said they’d be more likely to purchase from a retailer again upon receiving surprise giveaways (magnets, stickers, etc.) with an order” – Dotcom Dist

You don’t have to just blindly hope that there is an ROI when making these extra investments. Tools such as SegMetrics can let you split test what you are shipping to customers and see the LTV in the following months.

That way you can see if the freebie or next day delivery was worth the cost in terms of bringing back customers.

Upsell to a subscription

One-off purchases are great, but monthly revenue is even better. It can hold the potential for extreme increases in LTV, such as Oatly whose milk subscription increased LTV by 14x.

Subscription boxes have led the charge, but now other online stores are adding subscription options to their products. It is especially well suited to industries such as:

• Beauty products
• Fashion and clothing
• Food and beverages
• Health and wellness
• Home goods
• Pets and animals

Tools such as Recharge enable merchants to easily set up, promote and manage subscription products. They have great potential either as a primary product, or to upsell to buyers who were happy with their first purchase.

If you set up a subscription, it is important to properly attribute the sales. With SegMetrics you can see what campaigns bought in the initial purchases that then lead to a subscription.

How to measure changes in LTV

So hopefully you have some ideas you want to try out for increasing LTV.

But blindly picking one and hoping it pays off isn’t ideal. Iit’s best to instead test how each one impacts your revenue using the following steps:

1. Create your new email sequence and set up the relevant automations
2. Tag customers within your email platform to determine which approach you’re using with them
3. Send them the relevant email or direct mail package and wait the desired time to see what happens
4. There are two choices to analyze the impact
   
   1. Export the tag and revenue data from your email platform and manipulate it in Excel
   2. View the data directly in SegMetrics by comparing LTV per tag
      
5. Boast to your boss about how much you increased revenue

SegMetrics can also attribute this LTV data back to your ad campaigns and traffic sources. You can discover which campaigns are more likely to bring in repeat customers and measure RoAS based on lifetime value.

Sam has an online music course that she has been running for 4 years.

The market has become increasingly crowded, so she had started running paid ads with the help of a PPC consultant, along with running a 30 Day Challenge.

Her funnel was fairly normal. She had a strong following with her free content on Youtube, where she occasionally promoted her lead magnets. Subscribers then went through an email funnel leading to a sales page for her paid course.

She was skeptical about whether she was getting a solid ROI from her campaigns. The ad platforms couldn’t give her reliable data about generated revenue, with Google and Facebook often conflicting and not matching up with her actual revenue.

Bad data meant she couldn’t be certain she was properly identifying issues in her funnel or successfully testing changes.

[Note: “Sam” is an amalgamation of various true stories from SegMetrics users, not a single person]

The plan of attack

Sam needed a reliable way to assess her whole funnel. She needed to know the ROAS based on lifetime value, with ways to test how each piece was affecting revenue.

SegMetrics let her do just that, with traceable data and multi-purchase attribution.

She decided that she needed to form a plan instead of jumping into the software with guns blazing. Her to-do list became:

1. Optimize the web traffic to ensure that it’s profitable instead of burning money
2. Maximize average order value (AOV) so she’s not leaving money on the table
3. Improve retention in the middle funnel with relevant and engaging content

These are prioritized both by urgency and ease. The middle of funnel has the most moving pieces and can be the murkiest to optimize, so is best left until after the quicker wins of TOF and MOF.

With a plan in hand she was able to tackle these three challenges.

What’s my ROAS?

Top of funnel (TOF) is where quick wins are usually found, as there is great data waiting to be uncovered. The core goal is to ensure that every campaign has a positive ROI.

The core question was whether the $3k/month she was spending on ads was creating a positive return on investment. So, she looked at lifetime revenue from each campaign she was running.

Evaluating her 30 Day Challenge

Sam had a new 30 Day Challenge that she was paying to promote. Her PPC consultant was excited as it was bringing people in for only a $20 CPA, but was unable to say how that translated into money in the bank.

Google and Facebook were unable to track leads over the long sales cycle, while her customer data wouldn’t say how many of her sales were a result of the challenge.

With SegMetric’s Ad Report she could instantly see how much she made from people purchasing after the 30 Day Challenge… and the news was terrible.

She had an Ad Spend of $9,452 to promote the challenge, but the revenue from the attendees was only $1,700, meaning a loss of $7,752 and RoAS of only 18%.

Promoting her challenge was burning through money while making a loss. She immediately paused the campaign with plans to reassess the strategy.

Not all lead sources are created equal

She had also been running ads direct to her sales page on Facebook and YouTube.

On the face of it both were successful, with a Customer Acquisition Cost (CAC) of around $80. Some back of the envelope maths had given her a customer value of $125, averaged across all of her customers.

But, she had assumed that customers from different sources would spend similar amounts. There had been no way to compare how much customers from organic, video ads, display ads and social were spending, especially considering her program was a monthly subscription.

SegMetric’s Revenue Report was able to segment her contacts by source, showing how the customer value varied.

It showed an almost 3x variation between the most and least valuable customer sources!

She could see that customers from Facebook spent $180, but ones from YouTube only spent $60. So, a CAC of $80 for YouTube ads was losing her money.

Her top-level numbers had hidden this variation, so again she took a step back to find the issues before wasting more money on underperforming ads.

Finding the best upsell combinations

Bottom of funnel is all about improving conversions and average order value, through testing different sales pages or offer combinations.

Now that Sam’s ad budget was all allocated to profitable campaigns, she could focus on improving the AOV.

Over the years Sam had built up a small array of core products and potential upsells, downsells and cross-sells.  She had used her best guesses to match them up, but again there was no real way to test what decisions lead to the most sales.

Her sales data could tell her the total she had sold of each product, but not how different pairs performed.

Yes, you’ve guessed it, she took a look at the data in SegMetrics

It automatically showed how pairs of products were selling together based on the customer invoices. With a few clicks she had a table of how each order bundle was selling.

She could see that while the Essential Scales eBook had more orders, her Private Lesson Bundle lead to double the revenue due to the higher cost.

By focusing on this upsell Sam realized she could easily raise the AOV, which in turn would mean she could afford a higher CAC.

A way to finally analyze email sequence performance

Middle of funnel can be tricky to optimize due to the complexity, but the aim is to ensure it is maintaining attention and building the desire for the proposed solution.

Sam now had a profitable funnel, with good traffic and popular offer combinations. That gave her the headspace to give her email sequences attention.

The email platform gave her the usual metrics around clicks, open rates and revenue per email.

But like with ad revenue attribution, there was no inbuilt way to see how much a group spent after going through a particular email sequence.

For research purposes, she had been asking people about their musical experience when they submitted their email. She had wondered whether beginners and advanced students were equally likely to join her course, but again there had been no easy way to tell since customer data is in a separate silo.

So Sam went into SegMetrics to look at how these groups were moving through her funnel.

At an overall level she could see a gradual drop-off through her funnel as would be expected.

However the table revealed a few surprising details:

1. Most of her leads were beginners
2. Most of her revenue was from advanced 
3. The beginners all dropped off around emails 3 and 4

She went back to her email funnel and saw that emails 3 and 4 are when she starts to introduce more nuanced topics which were clearly alienating beginners.

Sam realized she had to write a whole new email sequence for beginner that would keep them interested, while also finding ways to get a higher number of advanced students into her top of funnel.

Epilogue: And she funneled happily ever after

With her funnel stages all working together, Sam could finally stop stressing (as much) about her business.

She could see that her course marketing budget had a healthy ROI, while her funnel lead to a higher and higher LTV.

Sam even tried revisiting the 30 Day Challenge she had paused. The improved MOF and BOF meant that these leads converted far higher so the challenge became profitable.