Warehousing and Inventory Management: A Comprehensive Guide

What Is Customer Lifetime Value (CLV)?

Customer Lifetime Value (CLV) is a metric used to measure the amount of revenue a customer brings to a business over the course of their entire life cycle as a customer.

A customer’s life cycle can vary by industry. Household staples like cleaning supplies, for example, can have a very long customer lifecycle. We all have brands we reach for every time we go to the grocery store. And most of us know someone who will only buy one model of car for the rest of their life.

Other products have a limited life cycle – diapers and infant formula, for example. Most adults are only parents to young children during a limited window of time. Once their children outgrow those products, they no longer purchase them, regardless of how faithful they are to a single brand. However, when consumers become fierce brand advocates, they will recommend them to their friends and family. 

Customer Lifetime Value depends not only on the length of the customer life cycle but also on the amount of money a customer spends over their lifetime. It’s important to find ways to re-engage with customers to encourage repeat purchases. Many brands do this by:

• Releasing a seasonal catalog or look book
• Regularly announcing new products
• Reminding customers when it’s time for a refill
• Suggesting complementary products for past purchases
• Setting up a subscription service that bills and ships automatically

Why Does Customer Lifetime Value Matter?

Most merchants learn quickly that it’s less expensive to retain an existing customer than it is to acquire a new one. In fact, Harvard Business Review estimates that acquiring a new customer can be as much as 25 times more expensive.

Customers making a first-time purchase may want to dip their toe in, purchasing a small quantity or a low-value item until you gain their trust. It’s important to build strong relationships with customers until they feel comfortable creating larger carts with a higher Average Order Value (AOV).

How to Increase Customer Lifetime Value with Fulfillment

A recent survey revealed that over half of merchants have seen lower margins this year, largely due to increased supply chain costs. To succeed in the current market, savvy merchants are looking to optimize their customer experience to increase Customer Lifetime Value (CLV), lower their Customer Acquisition Costs, and increase their margins.

In today’s digital-first retail environment, fulfillment and delivery are key factors in creating an excellent customer experience. eCommerce shoppers’ first physical experience with a product is the delivery experience, making fulfillment a key factor in increasing customer lifetime value.

Fast Shipping Promises Attract New Customers

Fast shipping is an expectation for today’s consumers. In fact, a recent consumer survey revealed:

• 69% of consumers are more likely to click a display ad that mentions fast and free shipping
• 77% are more likely to purchase an item if it can be delivered to them in 2 days or less.

Additionally, merchants report that fast and free shipping promises are more effective than discounts or free gift offers at improving cart conversion rates. In fact, 65% of merchants report that a 1- to 2-day shipping promise improves cart conversion rates by up to 25%.

Fast Shipping Execution Retains Customers

While fast shipping promises can attract new customers, actually delivering on those promises can retain them. A recent study by Gartner revealed that poor supply chain performance can significantly decrease customer loyalty – even more than price increases.

All told, supply chain issues such as delayed shipments may decrease the chances of a repeat purchase by up to 87%.

On the other hand, 79% of consumers say they are more likely to make a second purchase from a merchant after a positive delivery experience.

Fast Shipping Incentivizes Higher Spend

The promise of fast shipping entices shoppers to add more items to their cart. In fact, 84% of consumers admit that they have added something to their cart to meet a minimum threshold to qualify for free shipping.

Larger carts create economies of scale and yield higher profit margins by:

• Offsetting pick, pack, and shipping costs
• Maximizing returns on marketing spend

Ultimately, customers who spend more money per purchase have a greater Customer Lifetime Value, driving more profitability for your business.

How to Build a Fulfillment Network to Increase Customer Lifetime Value

Faster shipping doesn’t mean more expensive shipping. Here’s how you can improve your delivery speed and increase sales without sacrificing margins.

1. Distribute inventory closer to end customers. Fulfilling all orders from a single warehouse leads to slower delivery times or over-reliance on costly air shipments. Stocking additional warehouses in strategic locations enables you to reach customers in 1-2 days via UPS Ground.
2. Find a flexible warehousing partner. Small to midsize businesses (SMBs) may not be able to carry enough inventory to stock multiple warehouses. A flexible fulfillment partner will aggregate your inventory with other merchants’ so you can stock smaller amounts of inventory in multiple locations.
3. Lean on technology. Another barrier for many SMBs is finding out exactly where they should be stocking their inventory to enable 1- to 2-day ground shipping to all of their customers. Historically, a custom warehouse network built by a supply chain consultant is cost-prohibitive for SMBs. However, new technology that leverages machine learning and ecommerce fulfillment data can make network recommendations within minutes. 

Looking for a custom warehouse network to reach your customers with faster shipping? Get a free analysis using Ware2Go’s self-service tool, NetworkVu.