Cracking the Code: How to Unlock Your LTV and Boost Your Amazon Sales
If you're an Amazon seller, you've likely heard of Lifetime Value (LTV). But what is it really telling you about your business? The truth is, Amazon customer lifetime value is not a metric on its own. It's an output metric that is a result of other key input metrics that you need to be aware of to get the full picture of your Amazon sales.
So, what are these input metrics that contribute to LTV, and what can you do to improve them? Let's take a look!
Customer Retention Rate
First off, Amazon customer retention rate plays a critical role in driving LTV growth. Retention rate is the percentage of customers who make a repeat purchase. Keeping existing customers coming back is much more cost-effective than attracting new ones. So, it's crucial to invest time into keeping your retention rate high.
Look for opportunities to enhance customer experience, provide exceptional customer service, and offer incentives or loyalty programs to encourage repeat purchases. Additionally, analyze customer feedback and reviews to identify areas for improvement and address any pain points.
The second variable that determines LTV is the time period between purchases (purchase cadence). This factor varies depending on the product. Some products, like 30-day supplements, are meant to be consumed quickly and are expected to have a shorter repurchase window. Whereas, for products like water filters, which may last 12-18 months, LTV has to be calculated over a more extended period. It is important to choose the right timeframe to calculate LTV based on the product category.
For most products, the sweet spot is 90 days or three months. This timeframe allows sellers to examine how many customers come back during that period and how often they repurchase. Health and beauty products, supplements, food, and drinks are among those products that generally fit into this category.
The third input variable and arguably the most challenging one to control is the actual margin. It's crucial to calculate LTV based on actual profit numbers. This includes taking out your cost of goods sold and all the fees associated with selling on Amazon. For your LTV to grow, you must consider the margins on the products that are being repurchased.
For instance, supplements and health and beauty products often have cross-purchases, where customers tend to buy multiple items. Margins are different across these products or categories. Customers may enter with a lower margin product but make a more significant purchase with a higher margin product later on, leading to high LTV growth.
In summary, calculating LTV is not as simple as just looking at one metric. The key input metrics to be analyzed are customer retention rate, the repurchase window, and margin. By focusing on these variables, you can develop effective strategies and tactics to grow your LTV and, in turn, your Amazon sales. Ultimately, growing your LTV is a reliable way to increase profitability and achieve long-term success on Amazon.