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Understanding Average Customer Spend
Countless metrics highlight the health and trajectory of your ecommerce business. When viewed through the lens of cohorts, average customer spend can offer insight into shopping behaviors and customer loyalty.
At Tydo, we define average customer spend as the average dollar amount a customer in a selected cohort has spent over a specific time frame.
This metric is a valuable tool for understanding customer loyalty. Similar to the feedback and insight lifetime value (LTV) provides, average customer spend gives you an idea of how much a particular customer (of a cohort) is spending over time with you and highlights gaps and opportunities.
How to calculate Average Customer Spend
Average customer spend = total sales to date made by customers in a specific cohort (Shopify) / Total customers in the specific cohort (Shopify)
Data source: Tydo, Shopify
Note: We use the total sales number from Tydo in this calculation.
Example
Let’s say you own an online specialty coffee store. In August 2021, your store had 1,500 first-time customers.
Later that year, in December, you decide to look at the cohort data of your first-time customers going back to August 2021. From August 1 through December 1, 2021, those same 1,500 customers spent $275,000 at your store.
Customers bought a variety of coffee blends, equipment (French press and espresso pot), starter kits, and branded merchandise.
So, using the formula above, the average customer spend for this cohort is $275,000 / 1,500 = $183.33
Takeaway
Average customer spend is like a baseball player’s batting average. Every at-bat counts, but it’s more important to know how many hits the player has made over time.
Why is it a good idea to look at your average customer spend of a particular cohort? It gives you insight into whether the quality of those customers increases or decreases over time. Are they purchasing more from your store or less?
By tracking average customer spend, you get a zoomed-out picture of customer loyalty and what customers spend over time.
Do you spot any patterns of customers dropping off at a certain point? Are customers placing consistent orders? Is a product launch or major promotion getting customers to spend way more or way less with you?
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Read more about Average Customer Spend
How to increase Average Customer Spend
Offer subscriptions
Subscriptions are a great way to connect with your customers and boost recurring revenue spend, as retaining customers is more cost-effective than constantly acquiring new ones.
The key: Brands need to focus on getting customers back for purchase numbers two, three, and four.
Alex McEachern, director of marketing at Repeat, recommends asking yourself this question: “How can we reduce one-time purchases?”
Olipop uses exclusive perks as an incentive for customers to sign up for a subscription. Implementing subscriptions is one way in which you can get your customers to continue to spend with you over time.
Focus on building an exceptional customer experience
If you want your customers to keep coming back, focus on building an outstanding customer experience.
Customer service and customer experience are not the same, says Eli Weiss, senior director of customer experience and retention at Jones Road Beauty.
“Customer experience is proactively improving every step of the customer journey and creating lifelong super-fans of a brand. It’s a marketing tool,” adds Weiss.
How can you build an A+ customer experience? What are key tactics?
Acknowledge your customers. Be responsive on social channels and email. Create memorable unboxing experiences (which lead to UGC) and don’t make customers jump through hoops when managing returns. Use tools such as Loop. They’ve created a solution that simplifies returns and helps brands retains more revenue. Above all else, surprise and delight.
Why does Average Customer Spend Matter?
It highlights customer loyalty
Every business wants to acquire new customers, but real growth happens with loyal and returning customers.
It’s important to watch metrics such as average customer spend because, similar to LTV, it highlights customer loyalty and the value your customers bring to the business. Are they spending more or less?
Depending on your product category, your average customer spend might vary. For example, if you’re selling furniture, your customer might only buy a few pieces every couple of years, whereas if you’re selling coffee, your customers might purchase your coffee beans more frequently. This context will help you better track and understand average customer spend.
It indicates growth opportunities
Tim Peckover, senior manager of marketing and communications at Smile.io, says community is connected to everything you do—even average customer spend.
Customer service and community building work both increase customer loyalty over time while emphasizing other metrics such as average order value (AOV) and repeat purchase rate.
Keeping this in mind, tracking average customer spend starts to provide answers to questions such as:
- How can we better serve customers?
- What does our retention strategy look like?
- What does a particular cohort tell us?
Seeing the data firsthand allows you to customize marketing and strategy efforts earlier in the customer’s shopping journey.
