Want to Double The Profit Generated From a Single Customer? Master This 5-Step Strategy Promotions are a great tool for e-commerce businesses. However, if not used strategically, they can do more harm than good. With this 5-step strategy you will be able to keep your customers coming back, transforming them into your brand evangelists. With practical tips, learn to identify key customer segments, find products that drive repeat sales and craft effective promotional campaigns that skyrocket customer lifetime value.

As the founder of a startup that enables eCommerce stores to use data science and through my previous work in email marketing optimization for hundreds of clients, I have seen firsthand how powerful — and potentially dangerous — discounts and promotions can be. They drive sales during slow periods, offer new customers a cheaper entry point and enhance relationships with existing customers. However, they can also turn customers into discount hunters.

In this article, I'll share my battle-tested five-step strategy to create promotions that not only boost short-term sales but also increase your customers' lifetime value. By the end of this piece, you'll learn how to:

1. Identify your most promising customer segments for promotions.
2. Select the right products to promote for maximum impact.
3. Calculate discounts that drive sales without devaluing your brand.
4. Time your promotions for optimal engagement.
5. Measure the long-term success of your promotional campaigns.

Step 1: Target the right customers

eCommerce businesses typically have three types of customers:

1. The one-off customers: Often representing the majority of your customers, these are customers who only bought once.
2. The occasional customers: The ones who have made two or three purchases.
3. The loyal customers: They are your driving force — these are the customers who would tell their friends about your products and buy from you on a regular basis.

According to Harvard Business Review, acquiring a new customer is five to 25 times more expensive than retaining an existing one. To increase customer retention, it is much easier to move customers from "occasional" to "loyal" than from "one-off" to "occasional." This is because the one-off group lacks one crucial characteristic: proven intent to repurchase.

Related: Customer Loyalty Is Your Holy Grail for Success. Here's How to Cultivate It.

Step 2: Find the product that gets customers hooked

Now that you have selected the target audience for your promotion, the next step is to select which products to promote. Since the goal is to increase loyalty and retention, your best bet is on the products that keep bringing people back to your store. These are the products that turned the once-occasional customers into regulars. Despite the variety, the vast majority of McDonald's customers keep coming back for the Big Mac, so you need to find your "Big Mac." To find this star product, it is enough to examine your sales data to see which product(s) have generated the most revenue from repeat sales.

Another approach is to find out if you have a gateway product. These are products that your customers might buy first, which would then lead them to other products that drive repeat sales. For instance, if you run an online business that sells specialty tea, your gateway product might be a sampler box containing a collection of curated blends for customers to try. After tasting them, they might pick a favorite and keep buying it from you on a regular basis.

Step 3: Strategic discounting

With your target audience and product of choice ready, the only thing remaining is to craft the details of your promotion. These details include the timing, the copy, and the discount. However, while doing so, it's crucial to maintain a strategic approach to discounting. Discounting your products too much can make customers perceive your brand as less valuable. The goal is not to make people buy because the price is irresistibly low but to encourage those already considering a purchase to take action. According to a survey conducted by Harvard Business Review, 95% of sales leaders at Fortune 500 companies keep discounts below 25% so as not to erode the value perception of the product.

Step 4: Time your promotions strategically

The key to timing the promotions is planning ahead and analyzing your data. It is important to plan ahead because jamming multiple promotions too close to one another will yield much weaker results than having an adequate amount of time to separate them.

In addition, you need to analyze your customers' response rate to your previous emails and promotions by time of the day and day of the week. For instance, working professionals will most likely engage with your promotions Tuesday through Friday. A study by Hubspot found that promotional emails sent on Tuesdays have the highest engagement (27%), followed by Mondays (19%). However, your specific audience may differ, so always rely on your own data to determine the optimal timing for your promotions and consider A/B testing multiple options to find the one that works best.

Once you have identified the optimal timing, you can now piece together the puzzle and launch your campaign.

Step 5: Monitor and analyze

After sending the promotion to your customers and reaping the short-term profits, the job is not yet done. The goal was not to simply generate a boost in revenue. The goal is to increase the customer lifetime value by transforming them from occasional customers to loyal ones.

Measuring the success of such a campaign takes time and patience. This is especially true if your business sells high-ticket items where the repeat purchase cycle is long, e.g., furniture. To get a good estimate of how many customers were converted, a good idea is to wait twice the duration of the repeat-purchase cycle at your store. For example, if the average time between two consecutive orders by the same customers is two months, then you might need to wait up to four months to observe the true effect of your campaign on customer lifetime value.

Related: Partners Over Partnerships: How Authentic Customer Lifetime Value Can Drive Growth

Conclusion

Promotions and discounts can be a double-edged sword, but strategic thinking and data analysis can be a transformative tool that skyrockets your customer's lifetime value. By implementing this five-step strategy, you can turn occasional customers into regulars who purchase from you repeatedly. As you apply these principles, you will not only see a boost in immediate sales but also cultivate a loyal customer base that drives sustainable growth for your eCommerce business. These loyal customers will, in turn, become evangelists for your products and drive even more sales and revenue in ways that cannot even be tracked in a KPI.