How D2C brands can increase customers’ lifetime value and why it is so important.

It is no secret that customer acquisition costs (CAC) are going through the roof. This trend has been ongoing for quite some time and the iOs 14.5 update in 2021 has not helped. The changes towards a stricter data privacy regulation gave marketers a hard time in terms of Facebook advertising. Especially for D2C brands, this meant fewer data and less precise targeting, resulting in higher costs per acquisition (CPA). In addition, the increasingly skeptical consumer is more and more reluctant to click on an ad, driving customer acquisition costs further up. Looking at the past six years, CAC has been growing by 60% and this trend won’t change in the near future (Source: Profitwell).

What does a rising CAC mean for D2C brands? 

Simply investing in awareness marketing and trying to gain as many new customers as possible won’t do the job. Another success strategy is required to keep up in this highly-competitive industry and to ensure growing revenues and profitability despite the extremely high CAC.

Focus on customer retention and increase customers’ lifetime value (LTV)!

It is absolutely crucial to build strong and sustainable relationships with your customers to make up for the large sums you have spent to bring them on board in the first place. By retaining customers, you do not just increase your margin and make yourself less dependent on high marketing budgets. On top, you can make additional revenue with each purchase without additional heavy investments. According to Harvard Business School, improving your customer retention rates by 5% can increase your profitability by up to 95%.

So retention is key to growing sustainably and becoming more profitable as a business. Plus, retention leads to a higher customer lifetime value which makes your business financially stable and hence allows you to further invest in growth.

What is the best ratio with regards to LTV and CAC?

Instead of acquiring as many new customers as possible, you need a healthy LTV:CAC ratio. This metric compares the value of a new customer over its lifetime relative to the cost of acquiring that customer. The known benchmark is 3:1 but of course, this varies from business to business.

How can you achieve a 3:1 ratio, focusing on customer retention and a growing LTV?

One crucial factor in building strong relationships is to provide a flawless and highly personalized shopping experience. Optimize the customer journey as much as possible and offer services that set you apart from your competitors. One aspect of the customer journey which is often overlooked is the delivery experience. However, by doing it right you can significantly increase customer satisfaction. Looking at the main drivers of online shopping, you can see a massive shift towards same-day delivery as the new market standard. It is requested by a rising number of customers and can determine whether a customer chooses your shop or not. According to the Ecommerce Delivery Benchmark (Metapack, 2022), 27% of online shoppers mention the speed of delivery (e.g. same-day or next-day delivery) as one of the main priorities for online purchases. 38% of customers who switch to online shopping do so because they want to receive their goods faster.
Another aspect demanded by 23% of online shoppers is convenience. This, for instance, includes getting offered a delivery window. 97% of consumers have even abandoned a purchase because the service was not convenient enough.
So convenience is clearly driving eCommerce growth and influences consumer decisions. Other factors which come into play are visibility & tracking (7%) as well as the CO2-emission (7%). Thus, there are many things that online shops need to consider to turn their last mile into a pleasant customer experience.

How to offer a superior delivery experience

Checking all the above boxes sounds impossible? This is where dropp comes in! dropp is a last-mile delivery solution that offers same-day delivery within 3 hours or on any other day in two-hour delivery windows. The time slots can be selected by customers to ensure that they do not have to pick up their parcels at their neighbors’ or stand in long post office queues. These time slots can be changed at any time in case the customer changes his/her mind. To offer even greater convenience, customers can track their deliveries and get regular updates via SMS or email. Besides, orders are delivered climate-neutral on e-bikes and with reduced and recycled packaging to offer a sustainable alternative to traditional shipping methods. 

Why dropp makes sense for your online shop!

Offering dropp as a delivery method has many benefits. First of all, customers highly value the superior delivery experience. With our net promoter score (NPS) of 90, your customers are more likely to engage in positive word-of-mouth and in becoming loyal brand advocates. Second, the likelihood of customers returning to a specific online shop if they have received their delivery via dropp is 30% higher compared to customers who have not been offered dropp during previous orders. Thus, dropp increases the customer retention rate and customers are willing to once again choose your shop over the competition. 

An increased retention rate in turn improves the customer lifetime value and your LTV/CAC ratio. So the chance of compensating for the high acquisition costs is increasing when offering dropp delivery at your checkout. Lastly, customers are not just becoming more loyal but they are also more likely to convert in the first place. Why is that? We can advertise for fast delivery early in the funnel. By using PDP widgets and specific pop-ups, which represent a clear reason to buy for many customers, we push them further down the funnel. This again positively impacts your conversion rate.

If that sounds interesting and if you are willing to become better with dropp, reach out: