eCommerceCustomerLifetime 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 first year. On average, flash sale businesses capture an additional 385% of a buyer’s first month’s spending by the end of their first year (compared to just 94% for traditional internet retailers). Customers of group buying, daily deal, and flash 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 flash 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.“Next Generation” RetailersIn this report, we use the term “next generation” or “next-gen” to refer to online retailers whohave a group buying, flash sale, or daily deal business model. Daily Deal companies offer asingle deal each day. Flash Sale businesses offer deals with limited inventory which can existover multiple days. Group Buying companies offer deals in which multiple members mustcommit to a deal in order to activate it.This is in contrast to traditional internet retailers who offer a largely static inventory ofmerchandise via a publicly-available online storefront.MethodologyRJMetrics collected anonymous, aggregated sales data from 48 online retailers in the areas oftraditional retail, flash sales, daily deals, and group buying sites. This information includedmetrics such as lifetime spending, repeat purchase rates, and time between purchases.When possible, these metrics were also segmented by business model, customer referralsource, and other dimensions. When segmenting by referral source, only data sets with atleast one hundred customers per referral source were included.
Customers of “Next Generation” retailers tookless time to return to make a purchase Daily Deals 48 Days Flash Sales 49 Days Group Buying 52 Days Traditional Online Retail 89 DaysAn analysis of the median time between purchases across different types of online retailersshowed a marked difference between “next generation” retailers and traditional internetretailers.Also noteworthy is that there was no significant difference in the time between purchases forcompanies categorized as daily deal, flash sale, or group buying sites. When customersreturned to make repeat purchases from those next-gen retailers, they did so with verysimilar frequencies.Average order sizes for next-gen retailers arelower than those for traditional onlineretailers. $105 The relatively larger average order value of traditional retail is to be expected when you consider that most next-gen retailers frequently $82 focus on selling a single product or promotion at a time, driving down AOV. $61 $61 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, potentiallyDaily Deals Flash Sales Group Buying Traditional Online Retail to save on shipping costs.
Customer Lifetime Value Growth 94% 143% 150% 385% Daily Deals Flash Sales Traditional Online Retail Group BuyingWith traditional retailers driving larger purchases but next-generation providers generatingmore frequent purchases, we needed a more comprehensive statistic to compare the relativeperformance of these two groups.By studying the growth of average customer spending over time (a popular way ofrepresenting customer lifetime value), we were able to better understand the pace at whichcustomers delivered value to their retailers.The chart above shows us the rate at which the average customer’s lifetime spendingincreases from the 30-day mark to the 365-day mark. In other words, this is the rate at whichtheir spending grows in their first year as a customer.The numbers here are higher than we had expected across the board, with traditionalretailers capturing an additional 94% of what a customer spends in their first 30 days duringthe remainder of their first year as a customer.However, the performance of next-gen retailers in comparison with traditional retailers isquite strong. Daily deal and group buying retailers capture an additional 150% of value fromcustomers in their first year, and flash sale retailers capture an incredible 385%. Theextremely strong relative performance of flash sale sites, even among their next-gen peers, isremarkable.Studying the top 10% of performers for this metric reveals that some retailers have atremendously strong ability to drive repeat purchases. Top-decile retailers have customerswho come back to spend over 600% of their first purchase amount in their first year ascustomers.
Customer Lifetime Value is slightly higher forcustomers originating from Facebook thanGoogleWe were able study the relative long-term spending behaviors of customers acquiredthrough Facebook and Google ad campaigns. $148 $159Despite controversy in the press over the efficacy of Facebook’s advertising platform, wefound that customers who were acquired via Facebook ads performed comparably tothose 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 ofacquisition, so the relative cost-effectiveness of these campaigns may still vary substantially.However, for those who convert into buyers, the ultimate value of the customer acquired wascomparable in the population we studied.How do you stack up?If you would like to understand these key metrics for your own online business, sign up for aFREE 30-day trial of RJMetrics today. In less than a week, you’ll have a fully-functional onlinedashboard populated with these and many other key metrics to help you drive smarterbusiness decisions.Head to www.RJMetrics.com