The topic de jour in eCom these days is scaling spend... raising your LTV is the single most stable and reliable way to scale Facebook ad spend. The higher the PSM, the higher the media budget can be. Remember that PSM = LTV / (CPA + COGs). CPA can be volatile, COGs can be really stable, LTV however, is easy to manipulate and creates the greatest opportunity for growth.
2nd Purchase Rate
We need to ask ourselves 3 VERY important questions...
How often does does someone buy more than once from you?
Out of every 100 purchasers, how many become customers?
How often is your LTV more than your AOV?
Without a 2nd purchase, your LTV cannot be more than your AOV. This means that your ability to scale growth & acquisition via adding budget can only comes from reducing CPA. ROAS comes from this first transaction... ROAS has little correlation to LTV. Projectable cash flow and business growth comes from LTV, and the correlating future revenue.
If you reduce your CPA by 10%... it might go right back up soon... so no stable revenue lift.
If you scale your budget by 10%... you might see your CPA rise... so no stable revenue lift.
If you improve your 2nd purchase rate by 10%... your revenue will be more every day in a stable and projectable fashion.
We also have to remember 2 fundamental truths.
1: The more transactions we have with a customer, the more opportunities we have to improve the AOV per transaction
2: The more often someone buys from a brand, the more likely they are to buy from you again
Get more people to buy from you a 2nd time, and you'll be able to scale our business with ease!
E-Commerce Product Vertical Integration
The simplest way to improve the LTV of a customer journey is to sell that customer a product that they are furthers their journey. E-Commerce vertical integration is a business principle built on the model of selling the same customer complimentary products. Nearly every household brand in the world has embraced this, and yet far too many small businesses are still effectively a product with a marketing team. From $5 food brands to car companies, clothing & education, insurance and real estate even.
Here are a few examples:
Apple has the iPhone & AirPods to go with it
Car dealers sell you a car & do the repairs
Insurance companies offer life & home insurance
Netflix, Spotify & Amazon Prime all charge you monthly
These are all examples of LTV lifts after the 1st purchase
We can ask ourselves:
What is the most commonly sold product by people who buy more than once?
How does one product you offer compliment the customer experience with another?
The easiest way to do this research for your brand is search Amazon and see what products they suggest in "Frequently bought together" section & to see what bundles your competitors offer.
Rebupsells: "But wait there's more"
We see it all the time in informercials, but we can 100% add them into our Ecommerce efforts as well. The most valuable rebuttal is an upsell. If your customer doesn't want a full price item... rather than discounting it and harming LTV and 2nd purchase rate, we can instead of an upsell bundle. "Buy 2 Get 1 Free" is a very common version of this. If your Rebupsell AOV is greater than your current LTV, you've improved your brand's LTV in 1 transaction.
Let's do the math:
If your AOV is $50 with a COG of $10 & the average customer buys 2 times for an LTV of $100
& the 1st sale Costs $40, the 2nd sale costs $25
Your net margin is $15
You could instead use the "Buy 2 Get 1 Free" rebupsell as a retargeting offer for a CPA of $80 & your COG would be $40
Your net margin would be $30... or 100% higher per customer
and the LTV goes up by 50% on just the 1st transaction
If the rebupsell offer accounts for 20% of sales, then the brand average LTV goes up by 10%
This would allow you to raise your growth & acquisition budget by 10%
If you get a single sale from the traffic of that extra spend, your PSM goes up immediately.
Get more than 1 sale & you're growing the biz fast!
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