Calculating customer lifetime value

Calculating customer lifetime value

Subscription ecommerce is huge, and continuing to grow around the world. But Shopify Plus stores selling products by subscription have a particular problem: how do I link the recurring customer payments back to the marketing campaign or channel that led to them subscribing?

Unlike standard ecommerce, it’s not enough to track the payment upon a first signup. It is the customer lifetime value (CLV) which counts in any marketing calculation.

“The great thing about a subscription businesses is that you don’t have to rely on one-time purchases.”
-- Rob Hoxie, co-founder of Tiege Hanley (read the interview).

In this post, I’ll cover why you need to track customer lifetime value, the problems with tracking it in Google Analytics, Littledata’s solution to provide better data, and how you can use it. Whether you’re using Bold or ReCharge as your Shopify subscription app, the tech will work for you.

But while we’ve built a straightforward solution, the problem is complex.

Why you need to track lifetime value

Let’s imagine a simple store selling a single subscription product for $50 per month. On average, it takes them $70 to acquire a new subscriber via Google Ads.

Now let’s think about 3 fictional customers of that store: Claire, Eric and Luke.

These 3 offer very different values to the business, and differentiating them (or the customer segment they represent) in Google Analytics is critical to business success.

In the graphic below, you’ll see that Claire is costing the business money, as her lifetime value is less than the cost of acquiring her as a customer.

Eric pays something, possibly buying twice from the business, but still has a short ‘lifetime’.

Only Luke continues for a reasonable time (and may continue subscribing).

Which of them brings the company profit?

The answer is only Luke.

Many subscription businesses only make money on customers who subscribe for over 3 months — but the loyal customers are immensely valuable, and may go on to pay for years. This also speaks to the immense value of customer retention among Shopify Plus stores.  

The problem with subscription analytics

Measuring and attributing this lifetime value is hard. The events happen in three different places, and need to be linked back to give a net value to be properly tracked:

Unfortunately, by default, the customer who chooses a subscription in Shopify may not be linked to the user that actually commits to a payment in ReCharge. In other words, transactions are often left improperly tracked and attributed; in many cases, the refund or cancellation is not tracked at all.

Take this Google Analytics screenshot from one of our customers (before fixing):

Although 19% of the traffic comes from paid search, none of the ecommerce transactions are attributed to paid search. Instead, they are linked to a totally different group of users from ‘direct’ traffic.

Littledata’s solution 

Littledata’s Shopify app combines the three steps in the customer lifecycle to bring together a unified view of the customer in Google Analytics. 

Once that customer has gone through the checkout, we can also track each subsequent recurring payment back to that same pre-checkout user journey (including the marketing campaign from which they came), along with other custom dimensions in Google Analytics to help you analyse lifetime value.

How subscription stores can use data to optimise marketing campaigns 

Once you have recurring payments feeding into Google Analytics, you can begin segmenting your marketing channels by those that bring a higher quality customer — ones that nearly or exactly match your target personas.

By using Littledata’s smart ppc connections for Facebook Ads and Google Ads, you can also pull in advertising costs to calculate Return on Advertising Spend (ROAS).

So do you know which marketing channels bring you customers with the highest lifetime value? Maybe you have one stand-out channel that brings the majority of Lukes, and some that only bring you Claires.

Recap & Conclusions

  • Customer Lifetime Value (CLV) is the one metric that matters for a subscription business
  • To scale using metrics like Return on Advertising Spend (ROAS), you need to have accurate CLV calculations first 
  • Getting that data into Google Analytics allows you to segment by marketing channel or campaign
  • Littledata’s advanced Google Analytics integration for ReCharge stores provides an easy way to stitch the data together

This is a guest post by Littledata, an ecommerce analytics app for Shopify stores.