AOV vs. LTV: Why Customer Lifetime Value Matters More Than You Think

Many marketing techniques are focused on increasing the average order value as customers convert on your e-commerce site.
Bundling? Free shipping? Suggested items? They all work toward the same goal: getting customers to buy more with each visit, increasing the average order value (AOV). But what about increasing the lifetime value (LTV) of your customers?
With modern customers increasingly treating e-commerce as a supplement or alternative to traditional retail, e-commerce owners and marketers need to find ways to turn one-time purchases into long-term relationships. It’s not enough to add $35 to a $100 order. Instead, you need to also encourage the brand loyalty that traditional brands often enjoy and the consistent “foot” traffic that traditional retail has long seen.
AOV is about using real-time sales tactics to increase sales volume. In contrast, LTV is about delivering individualized experiences over the long term to keep customers coming back. Let’s jump into why that matters more than you might think — and how both measures can work together.
Average Order Value: A Short-Term Boost of Revenue
Average order value as a number is straightforward: total revenue divided by the number of orders.
AOV is a good metric to start with as you begin exploring new routes of acquisition and upselling. After all, the higher your order value, the fewer customers you need to convert to reach your revenue goal.
At the same time, in the short term, it gives you more to work with. Higher revenue means you have more budget available to put toward marketing.
But focusing solely on AOV can be limiting. It not only fails to take into account your cost of goods and other expenses, but AOV also limits your view of month-by-month improvements and doesn’t adequately take long-term growth into account.
Lifetime Customer Value: A Long-Term Boost of Profitability
In contrast to AOV, increasing the lifetime value of a customer takes a much larger and long-term view of profitability.
To accurately calculate LTV for your e-commerce business, you need an accurate view of all costs associated with each order: shipping, cost of goods sold, processing fees and average refund rate.
Take that net revenue and multiply it by the customer’s annual purchase frequency and you have customer value. You can then multiply that customer value by the average customer lifespan.
With this method of calculation, you can see that AOV and LTV are actually closely related; order value affects customer value, which affects lifetime value.
The main difference in increasing LTV versus AOV is that lifetime value efforts are focused on organic changes to your interactions with customers.
7 Ways to Maximize LTV for Your eCommerce Business — While Maintaining AOV
It’s not as if AOV and LTV are mutually exclusive metrics for growing your e-commerce business. Both hold important insight into the effectiveness of your marketing and sales efforts.
But if your current focus is solely on AOV, it’s critical to explore ways in which you can bring an LTV approach to your marketing and sales efforts. And if you have been focused on driving long-term value but struggle with increasing order value in the moment, it’s just as important to look at personalization and landing page conversion strategies that will increase AOV.
These are a few tips that hit all the high points.

Make brand loyalty a primary business goal. If you start with the question “How can we keep customers coming back?” the potential answers will span marketing, sales, customer service and everything in between.

Make marketing channels more efficient. You don’t want your marketing efforts to feel like marketing to current customers. But that doesn’t mean they shouldn’t efficiently bring customers further down the funnel. Any marketing efforts should add value to customer interactions with your brand — such as birthday wishes and special targeted offers.

Make customer feedback a closed loop. Even negative reviews can lead to better ratings if they are handled correctly. Take the time to respond to reviews, find ways to make it right with dissatisfied customers and incorporate feedback into your processes and products.

Make personalization a key part of your marketing approach. Personalization is all about making the customer feel known and understood — by design, this keeps them coming back. Think about how to deliver relevant content and experiences across your site, mobile app and email campaigns to treat each shopper as a unique individual.

Make customer service a business pillar. As of three years ago, nearly 90% of companies expected to compete primarily on the basis of customer service. Customer experience is the new marketing.

Make customer transactions easy. An easy checkout process will help increase AOV and an easy account creation process should increase LTV, as it gives you a foot in the door for returning customers. It’s as simple as that.

Make use of your customer data. From how far down the funnel they make it, to the products they’re interested in, you have customer data at your fingertips. Bring all of this information together into a customer data platform to realize the benefits of acting on data in real time. You should also be using data analysis to assess how each tweak you make — from paid campaigns to personalization — affects your profitability.

Final Thoughts
Increasing both average order value and lifetime customer value requires leveraging one-to-one customer engagement. Personalizing experiences, closing the loop on customer feedback, easing customer transactions — all of these come back to utilizing the customer data you have available.
While LTV may be the better metric to focus on, AOV is still critically important. And at the heart of incorporating LTV and AOV into your e-commerce marketing and sales efforts is data. You have it at your fingertips, so why not use it?
With the right tools and practices you can use customer data to boost everything from customer engagement to e-commerce profitability.

App UX Analytics: Success Relies on Going Beyond the Numbers

Professionals from all mobile disciplines have pondered that there needs to be a better way to get the most out of their app development efforts. This applies to mobile product managers, UX and UI designers, app marketers, onboarding experts and conversion mavens of all colors and stripes.
Traditional Vs. UX Analytics: The Difference between What and Why
For too long, mobile professionals have relied on traditional mobile app analytics, which primarily focuses on key metrics, such as number of active users, drop-off rates, types of OS and devices being used as well as where geographically they are being used.
These analytics solutions, like the one Google Analytics provides, emphasize numbers instead of reasons for those metrics. For example, you may identify that your app’s retention rate is low, but you will not be presented with the data that will allow you to understand why users aren’t coming back.
This is where app user experience analytics takes center stage with its own analytic bag of features which enables app makers to take a deep dive into the UX and understand the ‘why’ behind the numbers.
UX analytics, like the one Appsee app analytics provides, is most effective in giving app makers what they need in order to refine and optimize the UX, by allowing them to investigate user behavior. By learning user behavior patterns, you understand why specific actions are performed by your users, making the app optimization process smoother. The insights you gain enable you to deliver the best possible UX in your app that is critical for retaining users, increasing conversions and maximizing in-app monetization.
At the core of app UX analytics are features you can use to discover the answers you need when it comes to optimizing your app. The two critical ones:
User Recordings – Allow you to see your app through your users’ eyes. When you watch user recordings, you can discover exactly how users interact with your app, which problems users encounter and what makes them complete/incomplete important processes within the app. Below is a sample of user recordings taken with app UX analytics.

Touch Heatmaps – By presenting you with an aggregated view of all user gestures (taps, swipes, pinches), you will see where your users are focusing their attention the most, understand how your app’s UI is performing and detect which gestures did not trigger a response in the app.

App UX Analytics in Action
They say seeing is believing, so I will bring a few real life scenarios of aspects of an app that can be refined, streamlined, and perfected to app stardom via the application of this ux analytics-centric philosophy.
Onboarding Experience
We subjected a new cooking app to UX analytics and we were able to identify hiccups when onboarding users. Let’s see what was gained from the process. The onboarding for this app included two fields to register with no social sign-in available. It then took users through a mandatory 4 screen tutorial post registration.
This is a good place to highlight why traditional mobile analytics might be good at giving you numbers, but that doesn’t give you a clear enough picture. With a drop off rate over 40% from the second screen, app makers such as this one need to know a bit more to get to the core of the problem.
When going back to the user recordings, for example, we see that the “Next” button didn’t show up and users were tapping all over the screen with no response, hence frustrating users and causing friction. It led the app maker to fix the error on the onboarding screen and realize a significant decrease in drop offs.
User Retention
After getting users to download your app (a major accomplishment in itself), most importantly, you want them to stick around, and visit often. You take a look at your retention cohort analysis and see that nearly all users (over 90%) who launched the app for the first time in January came back in February with a severe decrease in March, when you launched a new version of your app. By analyzing the touch heatmaps, you notice that when users leave the app and return to their session, they swipe right on the login screen, but their gestures are unresponsive. Users are not interested to login again, so they are trying to bypass this screen in order to continue their session where they left off. By refining and allowing them to continue, you will see your retention rate soar.
App Conversions
Obviously, the more users you have retained, the more chances you have of converting them. However, just having a high retention rate doesn’t mean you will convert them. You need to deliver them an experience that says. YES. I must have this. Whether it be a product or service.
In order to do that you need to analyze your user-based conversion funnels. You can watch videos of users who dropped from one of the steps in your funnel and gain an understanding as to why they didn’t proceed to the next step. It might be related, for example, to a slow screen loading time. Making adjustments and re-releasing you will be sure to increase your conversion rates and ROI.
Lifetime Value (LTV)
One of the most important things that app makers look at is LTV. How much value will a user bring me over the lifetime of him or her using the app? How much marketing spend do I need to allocate to acquire a user and does it make sense over the user’s lifetime. By using app UX analytics to identify the group of users who convert, you decide to reallocate your marketing spend in order to decrease the cost per customer acquisition (CAC). Furthermore, optimizing the UX in your app, will bring your users back to the app and increase their LTV.
How to Get Started
When using any type of in-app analytics, whether it be traditional or a UX tool, you must integrate the tool’s SDK into your app. This process normally only takes a couple of minutes. An app UX analytics solution doesn’t require to pre-define any events as it auto detects screens, buttons and user actions.
When you launch your app, you stand at the beginning of a long road. As many app makers see, there could be a pot of gold waiting at the end of it. It is up to you to make it happen. Constantly optimizing your app from day one based on what your users need as well as your business goals is a primary way to make that happen.
* This article originally appeared on Econsultancy blog