Amazon ACOS and Customer Lifetime Value 2024 - FREE Calculator

Published on June 5, 2024

About this video

Amazon ACOS can sometimes give you wrong impression on where you should invest your money. Tracking how much money new customer is worth to your business is a crucial metric when selling consumables.

In this video, we're diving into a crucial topic for Amazon sellers, especially those dealing with consumables, supplements, or niche products. If your Average Order Value (AOV) is low and your Advertising Cost of Sales (ACoS) is high, don't panic just yet. It's essential to consider your Customer Lifetime Value (CLV).

Key Takeaways:

*Customer Lifetime Value (CLV)*: Learn how to calculate CLV and understand its impact on your business. Knowing the average revenue you earn from a customer over time can transform how you view your ACoS. *CLV Calculator*: We provide a handy CLV calculator, which you can find at the end of video description. This tool uses your Amazon sales data to estimate your CLV based on customer retention periods. *Strategic Insights*: Understand why a high ACoS might not be as bad as it seems when considering CLV. Learn how to make data-driven decisions that can lead to long-term profitability. *Subscribe & Save*: Maximize your CLV by leveraging Amazon's Subscribe & Save program, offering incentives to retain loyal customers.

By understanding and leveraging Customer Lifetime Value, you can make smarter decisions about your advertising spend and long-term business strategy. Don't let a high ACoS discourage you. Instead, focus on the bigger picture of customer retention and overall profitability.

FREE Template used in the video: https://docs.google.com/spreadsheets/d/1UaGPfwGUsFI7P7vyYwox8cbUpEigCSWlczUayUKXFPA/copy

For more actionable advice tailored specifically to your business, visit: https://www.amazoniappc.com

Original blog post from Nuanced Media: https://nuancedmedia.com/customer-lifetime-value-formula-amazon/

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Transcript

Hi guys. So, uh interesting topic today. If you're selling something consumable or a supplement or maybe a South African biltong, hopefully. So, if your uh average order value is not that high uh and your ACOS is 150%, things aren't as bad as they sound. So, uh what I mean by that is that you will have to calculate your customer lifetime value. Uh the customer lifetime value is a metric that will that gives you an information on how much your business going to earn from an average customer over a period of time. Now, um I will be sharing this calculator uh down below in um video description, so check that if you find it interesting. Now, what what this does is it uh it's using your report from Seller Central. You can find it in the reports, then fulfillment by Amazon, then I think it's uh Amazon fulfilled shipments or something like that. Don't take my word for it. But you will find it uh and I've included that here in raw data. I've anonymized the the data, but this is how it should look like. So, you just paste it over there and calculator is going to work, hopefully. If not, just let me know. Um so, what this does is pretty simple. So, uh the only thing that you need to to input over here would be your expected customer lifetime value. Uh sorry, your expected customer lifetime. So, is it uh are you estimating that you will you will keep your customer for a 6 months or a year or more or uh depending on your category and your product. So, what this calculator does uh so, it calculates automatically what's the value of the data that you just pasted over here. I just took a sample of data like last 22 days. So, you'll you'll see that uh also you'll see that point over here. So, what it does it shows you the total value. It calculates number of orders in a in a raw file, and I've added all the explanations here that's so obvious I don't need to go through all of them. But it's important to know that the more uh the data you export, you will have uh more precise calculation over here. So, do your homework and export all of that data. Now, what this actually does uh it as it is it takes the amount of data that you exported and then based off of that it calculates what if that is going to uh be the same for for for a whole year. So, uh there's actually a calculation here, yeah, 365 days. So, you get uh the the actual average order uh so, the the the average order frequency and average average order value based off of the data you provided. Um The average amount spent per customer is per per year is shown, and then depending on how much you estimate that that's going to be uh I've just input here a year and a half. Let's do 2 years, even even better if that's the case. Now, this the the ta-da moment here is when you get the actual customer lifetime value uh in dollars in in in in amount of money that you can get over the course of time. Now, um this is what I meant when I said at the beginning that you shouldn't be stressing about your ACOS because we sometimes can get obsessed by the hey, my ACOS is that high, my total ACOS is that high, what's going on, and you can maybe even step away from a product because you are holding too tight on those metrics. Uh so, if you calculate that you invest whatever you if your product is, I don't know, uh what's here is the Okay, here's the average of $17. So, if you even spending $20 for a new um customer over period of time, that's actually a great ROI. So, you've invested uh um $17 or even 30 or whatever the number is, and you'll get the the outcome of almost $900 over the period of 2 years. Now, you should be also using subscribe and save option, obviously, and uh provide your future buyers with um additional incentive to be your loyal customer. Now, um yeah, obviously, this changes the perspective completely on how you do your business. Uh so, yeah, hope I'm really glad that more and more people are talking about it, so I wanted to share my thoughts on it. I will share, as I said, this calculator. Use it uh as you like it. Um this is not my work. I'm not the the brain behind it. That's uh the the guys from Nuance Media. From the description, you will see the the link to their website uh if you need more information on that. Um yeah, see you in the next video.