Increasing Lifetime Value After iOS 14.5
by Kathleen Booth, on Sep 16, 2021 12:00:00 PM
Ever since Apple’s iOS 14.5 update allowed users to opt-out of mobile tracking, mobile advertising on Facebook has taken a huge hit, and businesses across the board are seeing their ad campaign results plummet.
But because Facebook remains the most popular social media app on the planet, advertisers have no choice but to stick with the platform, even as the inability to target users and track activity has sent their cost to acquire customers (CAC) skyrocketing.
In the face of this shift, finding new ways to increase customer lifetime value (LTV) is one way to offset increasing acquisition costs and balance your LTV/CAC ratio.
One way you can accomplish this is by increasing “first purchase profitability” by preventing the automatic injection of scraped coupon codes from browser extensions like Honey and CapitalOne Shopping, putting a halt to unnecessary discounting and coupon leakage.
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What is Lifetime Value (LTV)?
Lifetime value is the total sales a customer brings in over the course of your relationship, subtracted by the total cost to drive each sale.
This means if a customer has contributed $200 in revenue, but costs $50 to acquire, their current LTV is $150.
We say current LTV because this number will always be changing as customers come back and make additional purchases.
iOS14.5 and Increasing CAC
Ideally, over time your CAC will decrease as customers become more familiar with your brand, while LTV slowly increases due to compounding sales.
As shown in the chart above, comparing LTV to your CAC gets you your LTV/CAC ratio. As an ecommerce business, you’re going to want to keep this at about 3.0 in order to profitably acquire customers.
Here’s an example equation:
One of the features released in iOS 14.5 was the ability for users to opt-in or out to in-app tracking. But since its launch, only 15% of US users - and roughly 20% of worldwide users - have chosen to opt-in.
This is a drastic shift that has had a massive impact on the online advertising industry, which is now only able to successfully target 15-20% of the audience it had just over a year ago. Businesses now have to run campaigns longer and earn fewer results, leading to a significant increase in CAC that is threatening profitability across the board.
And for many businesses, maintaining a healthy LTV/CAC is the difference between life or death.
Here are some quotes one ecommerce retailer has gathered from previously thriving ecommerce businesses that are now struggling to acquire new customers through Facebook:
Many retailers are already looking for creative ways to decrease CAC.
At the same time, it’s worth focusing on increasing the LTV of your customers. This way, you’re combating the issue on both sides of the equation in order to preserve your overall LTV/CAC ratio.
Increasing Lifetime Value with cleanCART
One way that customer LTV is negatively impacted is through discounting. Many retailers are willing to reduce their margins or even lose money on a customer’s first purchase if it means they can make it up down the road through repeat purchasing habits.
Of course, the holy grail for retailers is “first purchase profitability,” meaning you achieve a positive LTV/CAC from the very first purchase a customer makes. Accomplishing this requires tight control over your discount strategy.
Unfortunately, this is made more difficult by coupon extensions such as Honey and CapitalOne Shopping. While they claim to drive sales to your site, most customers checking out with coupon extensions installed have likely already made up their minds about making a purchase. When that is the case, it means that coupon extensions are not only not driving incremental revenue - they are unnecessarily reducing average order value.
Research into data from cleanCART customers shows that coupon blocking has little to no effect on cart completion rates, while increasing average order value by 4% or more, meaning that by blocking coupon extensions from automatically injecting discount codes at checkout, you are immediately increasing the LTV of customers who otherwise would have benefited from those discounts.
If you’re struggling with ROI on your Facebook campaigns and are looking for ways to positively impact your LTV/CAC ratio, cleanCART can help.
Sign up for a free cleanCART free trial here.