CODE
By clicking “Accept All Cookies”, you agree to the storing of cookies on your device to enhance site navigation, analyze site usage, and assist in our marketing efforts. View our Privacy Policy for more information.

Cracking the Code: How to Unlock Your LTV and Boost Your Amazon Sales

Explore the critical factors that drive Amazon Customer Lifetime Value and learn how to optimize each aspect to maximize customer loyalty, repeat purchases, and overall revenue growth.
By
Rael Cline
Last updated:
November 16, 2023

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. 

Purchase Cadence

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.

Explore the Lifetime ACoS model - What’s a Good ACoS on Amazon?

Profit Margins

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.

Conclusion

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.

Get these insights straight to your mailbox:

Unleash your amazon potential

Dynamic blueprints to help you sell smarter
Explore the guides

More on this topic:

3 Ways to Increase Amazon Customer Lifetime Value
3 Ways to Increase Amazon Customer Lifetime Value

To increase profit on Amazon you need to retain customers and grow your customer base. Increasing your CLV is a great way to do this; learn how to here.

Read more
Advanced Segmentation for Amazon Sellers: Unleashing the Power of Customer Analysis
Advanced Segmentation for Amazon Sellers: Unleashing the Power of Customer Analysis

Unlock customer insights and boost revenue on Amazon with advanced segmentation for Amazon sellers. Learn how to leverage Amazon Brand Analytics tools and third-party analytics tools to analyze customer behavior and optimize marketing strategies.

Read more
Amazon Customer Retention Rate: Why Increasing it Matters for Amazon Sellers
Amazon Customer Retention Rate: Why Increasing it Matters for Amazon Sellers

Learn why Amazon Customer Retention is crucial for FBA sellers in a competitive marketplace, and how to optimize your retention strategy to build your brand.

Read more