eCommerceCustomer Lifetime Value

Summer 2012 Benchmark

Key Findings:Flash sale retailers dominate traditional online retailers when it comes to growing customer lifetime value in a customer’s !rst year. On average, !ash sale businesses capture an additional 385% of a buyer’s "rst month’s spending by the end of their !rst year (compared to just 94% for traditional internet retailers).

Customers of group buying, daily deal, and "ash 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 "ash sale retailers.

When it comes to generating high-value customers, Facebook Ads perform surprisingly well up against competitors. 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.

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

This is in contrast to traditional internet retailers who o#er a largely static inventory of merchandise via a publicly-available online storefront.

“Next Generation” Retailers

RJMetrics collected anonymous, aggregated sales data from 48 online retailers in the areas of traditional retail, "ash sales, daily deals, and group buying sites. This information included metrics such as lifetime spending, repeat purchase rates, and time between purchases.

When possible, these metrics were also segmented by business model, customer referral source, and other dimensions. When segmenting by referral source, only data sets with at least one hundred customers per referral source were included.

Methodology

Customers of “Next Generation” retailers took less time to return to make a purchase

Average order sizes for next-gen retailers are lower than those for traditional online retailers.

Traditional Online Retail

Daily Deals Flash Sales

An analysis of the median time between purchases across di#erent types of online retailers showed a marked di#erence between “next generation” retailers and traditional internet retailers.

Also noteworthy is that there was no signi!cant di#erence in the time between purchases for companies categorized as daily deal, "ash sale, or group buying sites. When customers returned to make repeat purchases from those next-gen retailers, they did so with very similar frequencies.

The relatively larger average order value of traditional retail is to be expected when you consider that most next-gen retailers frequently focus on selling a single product or promotion at a time, driving down AOV.

For traditional Internet retailers, we also observed a positive correlation between the average time between orders and the average purchase amount. This is consistent with the observation that buyers at traditional retail sites tend to group more items into single orders, potentially to save on shipping costs.

Daily Deals

Flash Sales

Group Buying

Traditional Online Retail

48 Days

49 Days

52 Days

89 Days

Group Buying

$61 $61$82

$105

Customer Lifetime Value Growth

385%Flash Sales

143%Daily Deals

150%Group Buying

94%Traditional

Online Retail

With traditional retailers driving larger purchases but next-generation providers generating more frequent purchases, we needed a more comprehensive statistic to compare the relative performance of these two groups.

By studying the growth of average customer spending over time (a popular way of representing customer lifetime value), we were able to better understand the pace at which customers delivered value to their retailers.

The chart above shows us the rate at which the average customer’s lifetime spending increases from the 30-day mark to the 365-day mark. In other words, this is the rate at which their spending grows in their !rst year as a customer.

The numbers here are higher than we had expected across the board, with traditional retailers capturing an additional 94% of what a customer spends in their !rst 30 days during the remainder of their !rst year as a customer.

However, 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 !rst year, and "ash sale retailers capture an incredible 385%. The extremely strong relative performance of "ash sale sites, even among their next-gen peers, is remarkable.

Studying the top 10% of performers for this metric reveals that some retailers have a tremendously strong ability to drive repeat purchases. Top-decile retailers have customers who come back to spend over 600% of their !rst purchase amount in their !rst year as customers.

We were able study the relative long-term spending behaviors of customers acquired through Facebook and Google ad campaigns.

If you would like to understand these key metrics for your own online business, sign up for a FREE 30-day trial of RJMetrics today. In less than a week, you’ll have a fully-functional online dashboard populated with these and many other key metrics to help you drive smarter business decisions.

Head to www.RJMetrics.com

How do you stack up?

Customer Lifetime Value is slightly higher for customers originating from Facebook than Google

Despite controversy in the press over the e$cacy of Facebook’s advertising platform, we found that customers who were acquired via Facebook ads performed comparably to those acquired via Google ads. In fact, the average customer from Facebook spent 8% more in their lifetime than peers acquired via Google.

It should be noted that this analysis does not consider conversion rates or the cost of acquisition, so the relative cost-e#ectiveness of these campaigns may still vary substantially. However, for those who convert into buyers, the ultimate value of the customer acquired was comparable in the population we studied.

$159$148