Should We Chase Revenue or CLTV?

Fed at Stateset is a tech investor focusing on growth in the RPA, AI and ML SaaS space. His passion is to educate and learn from business leaders on new ways to ignite responsible growth.

Our fixation in eCommerce on revenues over CLTV (customer lifetime value) often reminds me of a young entrepreneur I worked with in Italy in the early 2000s. He licensed a great product from the U.S.and worked hard to build his sales engine. Revenue always found a way to come through the door… until it didn’t.

Over time, his products became obsolete and sales effectiveness diminished. The unnecessary investments in warehouse and staff sunk his ship so quickly that after only a few months of missed targets, he ran out of money, and opened a bakery in the countryside. Luckily, he had the best bread south of Rome.

Where to Focus Efforts

Looking back, he managed his top of the funnel exceptionally well, but not his customers or his business as a whole. In a business post-mortem, it was apparent how he never paid much attention to the cost of fulfilling orders or empowering staff to serve their customers better and understand future expectations.

Speaking with many merchants every month, the temptation to draw parallels often emerges. Merchants seem to focus 80% of their brain-power (not necessarily time) on “Top of the Funnel” initiatives; they seem to think of growth as a limitless concept, margins as unimportant and of profits are an afterthought. 

A significant portion of eCommerce agencies out there are not of much help either. Geared only to execute Top of the Funnel initiatives, they feed “innovative” ideas that, unsurprisingly enough, have very little to do with profit optimization or operational effectiveness and drain budgets on over tapped ideas.

How to Lose Money and Customers

What can we learn from all post-purchase touchpoints? Is it possible that somehow inefficiencies in post-purchase processes are acceptable to merchants? 

During a recent conversation with a merchant, it emerged that, when processing an exchange, a customer had to:

• cancel the order and get a shipping label (good luck with that)
• pay for their shipping back
• wait for the reimbursement (which impacts the eCommerce’s books, taxes, etc)
• re-order (often creating confusion for the Inventory Assignment team)
• pay full price
• send an email to the customer service team to balance any credits resulting from the shipping ($7) and any Black Friday Deals prices differences 

The process to exchange a $300 pair of boots needed the manual labor of 8 employees (from inventory to credit balancing, reimbursement, and tax calculations), cost roughly $450 in resources, wasted $25 in Google Ads budgets, and erased any residual CLTV.

CLTV is the Holy Grail!

Suppose a 5% increase in customer retention increases profitability by up to 95% (Bain & Co + Harvard Business School), what makes ecommerce leaders focus so little on CLTV, or customer lifetime value?

It’s hard to say for sure, but  I know that in the last three ecommerce purchases I have made, I had two equally bad experiences, both for the same reasons… people never bothered investing any time understanding their post-purchase operations. 

Things get complicated when eight members of staff have to consult 16 apps to do their job. Things get slow when a customer service agent has to speak to 4 different people to confirm if a return was received and in what condition. 

Suppose merchants had access to a Single Source of Truth for their eCommerce. In that case, I am confident they could see their CLTV grow 10 X, and customers would finally have a fantastic experience on other e-commerce sites besides Amazon or Mercado Libre.

To learn more about what a Single Source of Truth for Ecommerce Operations is please visit www.stateset.io.