eCommerce Customer Lifetime Value

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Customer lifetime value is an important metric for every business, but it is especially critical for ecommerce, daily deal, and flash sale sites, says RJMetrics. For companies like these, a key to success is profitably acquiring new customers. Without a firm grasp on customer lifetime value, companies run the risk of acquiring unprofitable customers or getting outspent and outgrown by a competitor who better understands the metrics of their model.

According to the Summer 2012 Benchmark report by RJMetrics on the ecommerce customer lifetime value, flash sale retailers dominate traditional online retailers when it comes to growing customer lifetime value in a customer’s first year. On average, flash sale businesses capture an additional 385% of a buyer’s first month’s spending by the end of their first year (compared to just 94% for traditional internet retailers).

The performance of next-gen retailers in comparison with traditional retailers is quite strong. Daily deal and group buying retailers capture an additional 150% of value from customers in their first year, and flash sale retailers capture an incredible 385%. The extremely strong relative performance of flash sale sites, even among their next-gen peers, is remarkable, says the report.

In this report, “next generation” or “next-gen” to refers to online retailers who have a group buying, flash sale, or daily deal business model. Daily Deal companies offer a single deal each day. Flash Sale businesses offer deals with limited inventory, which can exist over multiple days. Group Buying companies offer deals in which multiple members must commit to a deal in order to activate it.

The report says that the top 10% of performers for this metric have a tremendously strong ability to drive repeat purchases. These retailers have customers who come back to spend over 600% of their first purchase amount in their first year as customers.

Customers of group buying, daily deal, and flash sale businesses purchase nearly twice as frequently on average as customers of traditional online retailers.

Despite waiting longer between purchases, buyers at traditional retailers spend more per purchase. On average, purchases made at traditional online retailers are over 50% larger than those made from group buying, daily deal, and flash sale retailers.

Generating high-value customers, Facebook Ads perform surprisingly well against competitors, says the report. The average customer acquired via Facebook ads spends 30% more in their lifetime than the average customer acquired via Groupon and 8% more than the average customer acquired via Google Ads.

Customer Lifetime Value

• Google... $148
• Facebook... $159

N.B. This analysis does not consider conversion rates or the cost of acquisition, so the relative cost-effectiveness of these campaigns may vary substantially. However, for those who convert into buyers, the ultimate value of the customer acquired was comparable in the population studied.

For additional information about the study and RJMetrics, please visit their blog here.

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2 comments on "eCommerce Customer Lifetime Value".

1. Tom Francoeur from Emanate Boston
   

   commented on: July 2, 2012 at 10:12 a.m.
   Not sure I quite buy into this. The fact that "next generation" retailers are defined as those who use a flash sales or daily deal model makes me skeptical. And the Rice University studies and others have pointed out that daily deal buyers/customers are in fact the least loyal customers. It's the "one and done" syndrome. They buy for the deep discount and don't come back. Or, they're already a loyal customer who would have made a purchase anyway, but then they buy for the deep discount. Please let me know what I'm missing.
2. Forrads Gump from Stupid Questions Nobody Dares to Ask
   

   commented on: July 6, 2012 at 8:12 p.m.
   A definition of “lifetime” would help. The report hints 1 year? Jeez, I knew life was short, but…

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