Customer Lifetime Value (CLV) is critical for eCommerce businesses seeking smart financing. Here’s why it matters:
- CLV predicts revenue: High CLV suggests consistent purchases, helping lenders forecast future cash flow.
- Better funding terms: Strong CLV can lead to flexible repayment schedules or revenue-based financing tied to sales.
- Risk assessment: Lenders use CLV along with sales history and cash flow to evaluate credit risk and tailor funding options.
- Growth strategies: Businesses can use CLV data to allocate funds for inventory, marketing, and customer retention.
Why Customer Lifetime Value Is the Metric That Matters MOST
CLV's Role in Funding Decisions
Lenders often rely on Customer Lifetime Value (CLV) metrics like repeat purchases and average spending, combined with sales history and cash flow, to evaluate a business's potential and tailor funding options.
Using CLV to Predict Revenue
A high CLV highlights consistent purchasing habits, giving underwriters a clearer picture of future revenue. When businesses show steady repeat purchases and spending patterns, lenders feel more confident about predictable cash flow. This often results in better financing terms.
CLV in Assessing Risk
Lenders don't just look at CLV in isolation - they also consider sales history, cash flow needs, and existing debt. Together, these factors help assess credit risk and decide payment terms. By keeping an eye on customer retention and revenue trends, lenders can adjust repayment schedules and pricing to fit a business's financial performance.
How CLV Impacts Funding Terms
Strong CLV metrics can lead to more adaptable financing options, such as:
- Flexible repayment schedules tied to sales performance
- Revenue-based repayment that adjusts with sales, easing the burden during slow periods and increasing payments during busy times
Up next, we'll break down the specific methods for calculating CLV to guide these financing decisions.
CLV Calculation Methods
Getting funding decisions right means using the right CLV calculation method for your data capabilities.
Basic CLV Formulas
A simple way to estimate CLV is by multiplying average order value by purchase frequency and average customer lifespan. For a net CLV figure, factor in your gross margin and subtract the customer acquisition cost.
CLV in Business Planning
CLV can guide decisions like inventory planning, setting marketing budgets, and forecasting cash flow. By analyzing customer lifecycles and seasonal trends, you can better predict revenue and allocate resources effectively.
Comparing CLV Methods
- Basic formulas are ideal for startups or businesses with limited data.
- Historical CLV works well for established companies to assess past performance.
- Predictive analytics is best for businesses with extensive datasets and the tools to analyze them.
Each method has its place, depending on your business stage and data availability.
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Improving CLV for Better Funding
Once you've calculated Customer Lifetime Value (CLV), the next step is to use those insights to fuel growth strategies and build funding plans around them.
Strategies to Increase CLV
Here are a few ways to improve CLV and drive repeat business:
- Targeted promotions: Offer deals or discounts to encourage repeat purchases and attract new customers.
- Stock management: Keep top-selling items in stock to prevent missed sales opportunities.
- Faster shipping: Invest in quicker and more reliable delivery options to enhance the customer experience.
- Proactive customer support: Provide timely responses and keep customers updated on their orders to build trust.
Funding Plans Tied to CLV
When creating funding strategies, consider how CLV trends can guide your decisions. Forecast revenue based on CLV data and allocate funds for inventory, marketing, logistics, and customer service improvements. Make sure to estimate the potential return on investment for each initiative.
For example, Onramp Funds offers revenue-based financing that doesn’t require equity. Repayment is tied to a percentage of sales, making it easier to manage cash flow while funding strategies aimed at improving CLV.
Up next: Learn about eCommerce funding options that align with CLV-focused strategies.
eCommerce Funding Options
Let’s look at some funding structures that align with customer lifetime value (CLV)-driven plans:
Sales-Based Funding
This approach links repayments to your actual sales instead of fixed installments. Payments naturally adjust during slower periods and increase as your revenue grows. With CLV insights, this method aligns cash flow with income generated from repeat customers.
"Onramp offered the perfect solution with revenue-based financing to secure the capital we needed to invest in inventory and pay it back at a reasonable timeline once we made sales. The process was quick, easy, and the support was great." - Jeremy, Founder and Owner of Kindfolk Yoga
Benefits of Fast Funding
- Receive funding within 24 hours after approval, so you can act quickly on opportunities
- Keep full ownership since no equity is required
- Use funds flexibly for inventory, marketing, or operations
- Approval is based on business performance, not personal credit checks
This funding option works well with CLV insights, helping you seize customer acquisition opportunities quickly.
Platform Integrations
Onramp Funds connects with major eCommerce platforms, including:
To qualify, your business typically needs to generate at least $3,000 in average monthly sales on connected platforms. These integrations help assess funding potential across multiple sales channels using CLV data.
Next, we’ll explore how to turn these options into practical funding strategies.
Conclusion
Key Points
Customer Lifetime Value (CLV) showcases a business's stability and growth potential to investors. For example, Onramp Funds customers have reported a 40% revenue increase within 180 days. Revenue-based financing, which adjusts payments according to sales, supports growth strategies centered on CLV. Businesses like Kindfolk Yoga and Torrie's Natural have successfully used this approach.
Consider these insights as you plan your next steps.
Next Steps
- Verify Your Sales: Ensure your monthly revenue averages at least $3,000.
- Connect Your Store: Link your store to supported platforms to access CLV-based funding.
- Invest in Growth: Use the funds to focus on areas that enhance CLV, such as:
- Expanding inventory
- Running targeted marketing campaigns
- Streamlining operations
"Applied, got our offer, and had cash in our bank account within 24 hours. Their Austin, TX based team was very professional and helped me deploy the cash to effectively grow our business." – Nick James, CEO Rockless Table
