We've put together a complete, actionable and no-BS guide on lifecycle marketing based on what we’ve learnt from managing a database of over 1 million customers and from working with industry leading CMOs and customer relationship management (CRM) practitioners.
In this guide, we recommend approaches that are backed by data and repeatable. Our goal is to take as much of the guesswork out of the process. We know that marketers and growth people are busy people and saving your time by automating stuff is the best way to go.
Please enjoy and leave any comments or questions below!
First principles
Let’s start with first principles. What is the goal of marketing?
The goal is to maximize future cash flows for the business, thereby maximizing the value of the firm.
And how does the marketer maximize future cash flows for the business? By maximizing the future cash flows of every potential and existing customer.
The process of maximizing the future cash flows of every customer is termed lifecycle marketing. It’s a fancy term but the underlying principle is really simple. It involves putting each customer at the center of your business. The focus is on understanding what stage your customer is at with your brand and take steps to nurture a deeper relationship with him or her.
The lifecycle stages
Lifecycle marketing involves categorizing all your potential and existing customers into one of six lifecycle stages: click, convert, one-time, active, at-risk and lost. This is illustrated in the diagram below:
The Click and Convert stages are part of customer acquisition funnel. The goal here is to get a customer to make his first purchase. This means reaching out to customers who do not already know you through different channels, educating them about your brand values and why they should buy from you and incentivizing them to make their first purchase.
The One-time, Active, At-risk and Lost stages represent the customer retention process. The goal here is to keep a customer loyal to you. This means making a customer who bought once trust and like your brand enough to make his second purchase. It also means making a customer who is disengaged a reason to buy again.
The goal of lifecycle marketing is to move customers from a stage of lower value to a stage of higher value.
To understand this, we need to introduce the term Customer Lifetime Value, or CLV. CLV is how much each customer is worth to your business. In technical speak, CLV is the present value of future cash flows that a customer is expected to bring to your business.
The darker the bars on the chart, the higher the CLV of each customer in the stage. Active customers have higher CLV. Potential and at-risk customers have lower CLV. This also means that most of the value of an e-commerce business comes from its one-time and active customers.
Product, product, product
Before diving into the science of customer acquisition and retention, it’s important to set things up so the odds of the game are in your favor. There is no point optimizing for retention, acquisition and funnels until you know you have a service offering that customers want. That’s why a lot of the unfiltered advice out there for early e-commerce businesses (like the one below from Reddit) is about finding the right niche, product and knowing your customers.
Remember that having the right product or niche is the difference between having to speak to 1,000 or 100 customers to get one paying customer.
With that, we’re ready to look at each of the stages in detail.
Customer acquisition
The customer acquisition process is all about finding new customers at a cost that is less than the value that the customer brings to your business. The two stages in customer acquisition are Click and Convert. Let’s look at each of them:
Click
The Click stage is about getting potential customers to hear about you and “click” onto your website. This is also known as the Reach stage. The idea is you want to to reach out to as many customers as you can through different channels.
Just to highlight the obvious, the lowest possible cost of a click is zero. That’s why a lot of people recommend you spend your time reaching out through free channels first. These are channels like being active on Facebook groups, creating social media pages, reaching out to friends and family. If you acquire customers through free channels, the customer acquisition cost (CAC) is 0 and you most definitely meet the goal of customer acquisition.
However, the reason why we call this the “Click” stage is because one of the best ways to scale the process of finding new customers is through paid channels like Facebook, Instagram, Google and influencer marketing where you pay for customers to click onto your website.
Convert
After a customer visits your website, they now know about you. Your next goal is to convert them, which is to get them to make their first purchase. The goal here is to maximize the likelihood of conversion.
Conversion comes from building trust, social proof and purchase intent. On average it takes around seven interactions before a customer trusts you. Only then do customers feel comfortable enough to buy anything from you. An interaction can be anything from an email, a retargeting ad, an influencer featured on your website or a magazine feature.
In the convert stage, there are two types of customers:
- Identity unknown to you: they appear to you as a Cookie ID or Session ID
- Identity known to you: you have their email, mobile number or some form of contact (they are also tracked via cookies and sessions)
For both known and unknown customers, you can convert them using: retargeting and on-site recommendations (people who bought this also bought, new products, trending products, recently viewed).
For known customers, you have an extra channel to experiment with different messaging to build trust, value and purchase intent that maximizes conversions.
The idea to maximizing conversions is to identify what conditions must be satisfied to lead to a purchase. For instance, you might find that customers who know your brand values, has read your FAQs and seen famous people wear your brand are likely to make their first purchase. Then, perhaps your strategy would be to include your brand values and influencers on your home page and send a link to your FAQs in your welcome email.
Putting Click and Convert together
The goal of customer acquisition is to find new customers where Customer Acquisition Cost (CAC) < Customer Lifetime Value (CLV).
CLV was introduced in the lifecycle stages section above, but how do you calculate CAC? Here it is. The two stages in customer acquisition are Click and Convert. CAC is calculated from The Cost Per Click (CPC) and Conversion Rate (CR), such that:
Customer Acquisition Cost (CAC) = Cost Per Click (CPC) / Conversion Rate (CR)
Let’s look at an example of this in action in Google Adwords. The same applies to Facebook ads and pretty much any online advertising channel.
In Traffic Sources - Adwords - Bid Adjustments, you can see a column for Cost Per Click (CPC) and Conversion Rate (CR). From the table below, CAC = CPC / CR = Total Cost / Transactions.
You can also see how much a new customer spent on his first order in the Revenue column. With this, you can calculate your cash-on-cash return on investment (ROI) as approximately 4.8x (you spent $102,420 and got $482,831 in sales).
Note: You have to set up enhanced e-commerce tracking and link your Google Adwords to your Google Analytics to get this view.
To run a profitable business, you want CLV to be 2-4x CAC.
Just looking at First-Order Size (or Revenue) could lead to the wrong conclusions about which channels brings in the most valuable customers. In the Metisa Acquisition view, you can see which channels yield customers are more valuable in the long run by looking at their predicted CLV rather than just first order size.
Also, it is almost always better to experiment on different channels (e.g. Facebook, Google) and keywords and find out which is better for you. Any mainstream advice will be already reflected by market forces and may not work as well as you expect.
Knowing your customer personas
Making the equation work is also about being better at finding your best customers. Once you have an active e-commerce store, the Metisa Customer Personas could be helpful in helping you figure out who your personas are and how valuable they are to your brand. Think of ways to target these customers (e.g. with Facebook Ads)
Now it’s time to move on to Customer Retention.
Customer retention
To recap, the goal of marketing is to maximize potential cash flows from each customer. This is achieved in lifecycle marketing by moving customers from a stage of lower value to a stage of higher value.
After customers have made their first purchase, the goal is to retain them. They fall in one of four stages: One-time, Active, At-risk and Lost. Let’s look at each of them:
One-time
Hurray! Your customer has made his first purchase. You’re not quite done. In fact, you’ll see that for most brands, one-time customers are their biggest population of known customers.
One-time customers often makes up 70-80% of the population of paying customers in an e-commerce brand. This means that the strategy to convert one-time to active customers is often the area of largest opportunity in customer retention. This is also why we look at one-time as a separate population for customers who bought two times or more.
The Metisa Retention tool can tell you about the lifecycle distribution of your customers. Chances are, most of them are in the one-time category.
(Side note: Members are customers in the Convert stage we talked about earlier whose identity is known to you)
Note also that active customers have the highest CLV. That’s why the goal of lifecycle marketing is to move customers from a stage of lower value to a stage of higher value. Because in this example, each time you convert a One-time customer to Active, your business increases in value of $6,651 - $906 = $5,745. This is expected value (i.e. expected future cash flows discounted to the present), not cash value.
With one-time customers, the goal is to craft a message to encourage customers to make their next purchase. Typically, the email will include a receipt followed by action or actions that you want to encourage. In Metisa, we call these autoresponders. Common actions that we see include:
- Motivate second purchase (e.g. recommendations based on that purchase)
- Build social proof (e.g. request a review)
- Build brand value (e.g. remind them about your core values)
Example (Motivate Second Purchase): Huckberry
Example (Feedback): Warby Parker
Active
Active customers are customers who have bought twice or more. Customers who bought twice are often considered to be loyal and engaged customers. It is the goal of every lifecycle stage to move customers along to this stage.
The easiest automated action you can take on active customers are receipts. In fact, receipts are the first thing you should personalize because they apply to every purchase that is made on your store.
As per the one-time scenario, you would give them a summary of their purchase followed by some actions you want to motivate. Good ideas include:
- Word-of-mouth (e.g. ask them to refer a friend for a cash voucher)
- Build social proof (e.g. request a review)
- Feedback
At-Risk/Lost
We can talk about At-risk and Lost customers together because they both represent customers who used to be active but are increasingly disengaged. It makes a lot of sense to try to win these customers back because it reduces churn in your business.
We define At-risk customers as those with a less than 50% probability of making a purchase in the next 24 months. We define Lost customers as those with a less than 10% probability of making a purchase in the next 24 months. However, businesses look at this in different ways.
Most e-commerce businesses do winbacks like this. Look in their CRM tool for customers who have not bought in 12 months. Extract the list and send a campaign with a promotion.
Here’s the problem with this approach. The best time to winback a customer is at the point when he becomes at-risk because that is when the likelihood of conversion back to active is highest.
The diagram shows the lifecycle stages of 5 customers. The customers start out active and become at-risk and lost at different points in time. If you send a winback campaign at a fixed point in time, there will be customers in that group who are already lost or who have been at-risk for a while. This is clearly suboptimal.
The better way to do a winback campaign is to send your winback email immediately when customers become at-risk. You can see an example of this in our Metisa At-risk Autoresponder. That way, you maximize the likelihood of a customer coming back. The same principle applies to Lost customers.
Campaigns, recommendations and abandoned carts
There are a few other things that do not fit into a particular lifecycle stage but are very important because they apply across lifecycles - campaigns, recommendations and abandoned carts. We’ll cover them below.
Campaigns (email, SMS, push etc.)
Campaigns are any sort of messaging that you send to groups of people. Email is the most common channel in the Western world. In parts of Asia, especially mobile-first countries, a lot of CRM is done through SMS and push notifications.
Campaigns usually fall under the following categories:
- Holiday promotions
- Sales
- New product launches
- Events
Email campaigns can take up a lot of your time because each one is written in a different way. This means rethinking copywriting, content, the hook. For big brands, this is often a cross-department effort involving the marketing team, content team, data analytics team and marketing vendors. For smaller brands, it may mean limiting campaigns to only the ones that bring you bang for your buck and focus on things that can be automated first - recommendations and transactional emails in lifecycle marketing.
Campaign type marketing is less effective because modern consumers hate being marketed to and the top e-commerce brands have learnt how to personalize emails for customers. Take for instance this email below. The first four blocks are promotions (i.e. not personalized). The fifth block are personalized recommendations for each user. Guess what, 80% of sales from this campaign come from the personalized block, despite it being right at the bottom.
From our research, campaign efforts should be focused on time-sensitive content such as holiday promotions, events, new product launches because it gives you a reason to speak to the customer. The more you are able to personalize your campaign content, the more customers will look forward to receiving campaigns from you. Otherwise, it is better to communicate with customers with lifecycle marketing (i.e. transactional emails).
Recommendations
Recommendations increase the likelihood of conversion by showing customers content that is relevant to them. Recommendations can be used on-site and in campaigns. When done right, recommendations can easily contribute to 10% of your sales and increase sales conversions on campaigns by 2x or more.
Many marketing tools (including Metisa) allow you to include recommendations in your templates and on your website. For instance, the Metisa Magic Widget recommends products just as a customer is about to leave your page on mobile and desktop, increasing the likelihood of conversion.
Abandoned Carts
Abandoned carts deserve a special mention because they are the email that you will get the biggest bang for your buck from. Many customers add items to their cart but do not complete their buy. In other words, they abandon their shopping carts.
Look at these statistics from Baymard. An average of 66% of carts are abandoned.
Recovering 10% of your abandoned carts means a 20% increase in sales
For every $100 worth of product added to your cart, assume $67 are abandoned and $33 are sales. If you recover 10% of $67, or $6.7, you effectively make $6.7/$33 = 20% more in sales.
Here’s how you can do it. The example below from Shopify allows you to send an cart recovery email to each customer who abandons their cart. Other e-commerce engines have similar features or plugins that provide this feature.
Summary
Phew that was a lot of stuff. Quick recap.
In summary, every customer can be categorized into six lifecycle stages:
The goal of lifecycle marketing is to move customers from a stage of lower value to a stage of higher value. You do that because you want to maximize the value of your business, which comes in the form of future cash flows.
Before diving into your data, you need to figure out your product and who your customers are first. Doing that right makes everything easier.
The Click and Convert stage are related to customer acquisition. The goal is to acquire customers such that Customer Acquisition Cost (CAC) < Customer Lifetime Value (CLV). In customer acquisition, the actions that give you the best bang for your buck are on-site recommendations and focusing on one or two channels with the highest ROI.
The One-time, Active, At-risk and Lost stages are related to customer retention. The goal is to convert customers to the Active stage, which has the highest CLV. In customer retention, the actions that give you the best bang for your buck are recommendations, receipts, abandoned carts and winback campaigns.
Over to you
That’s it! If you’re thinking about growing sales on your e-commerce business, these lifecycle marketing strategies could work for you. It takes a lot of effort to get to know your customers, find your niche and refine your strategies but when you see those orders coming it...
It will all be worthwhile!
If you have any questions about the overall strategy or any of the individual articles, then please leave a comment below!