#18 Customer Concentration

This week's issue marks the end of the year! I have some exciting topics in mind for 2025 and can't wait to share them with you. In that spirit, Merry Christmas and Happy Holidays!

The Alpaca Story

Let’s say you’re the chief marketing officer at an apparel brand that’s moved $12 million in gross merchandise value (GMV) over its 5-year lifetime. You run a direct-to-consumer model on Shopify Plus, selling your signature line of alpaca-knit sweaters.

The brand has seen steady gains—around 35% revenue growth each year—and most of the marketing budget has gone into accelerating that top-line metric, focusing on:

• Encouraging customers to buy again and again

• Reducing churn rates

• Maximizing average lifetime value (LTV) across the board

LTV, at first glance, seems like an ideal metric. It’s easy to sum up with a neat sentence: “In their first six months, our average customer generates an LTV of $160, and over their entire relationship with our brand, this expands to about $220.” But in reality, using a single average number can sometimes blur the truth. Underneath that tidy average, your customers are anything but uniform.

Looking Beyond the Average: The Real Distribution of Value

You may have heard the anecdote: “A small fraction of our customers drive the lion’s share of our sales.” This notion is often traced back to the Pareto principle, the classic 80/20 rule. The exact ratio varies by business—yours might see 15% of customers driving 80% of revenue, or perhaps 10% generate half your sales. The point is that the impact of each customer isn’t evenly distributed. In fact, it’s often skewed drastically.

When you dig into your own data, you’ll likely see that your top customers are dramatically out-earning the rest. This unevenness—this “customer concentration”—means that a simple average LTV masks crucial patterns. By relying solely on that average, you risk missing strategic opportunities to tailor your approach, invest marketing dollars more wisely, and nurture the right segments at the right times.

Spotting the Whales Among Minnows

Consider this: Out of 60,000 total customers who’ve bought from your store, let’s say the top 1%—just 600 individuals—collectively contributed about $3 million of your $12 million in GMV. Meanwhile, it might take your bottom 25% (that’s 15,000 customers) to produce a similar total. Put differently:

This stark contrast highlights why an overall average LTV can be so misleading. If you treat those two groups as if they’re the same, you’re oversimplifying and potentially leaving money on the table.

Deeper Insights Through Distributional Analysis

Instead of focusing on a single figure, break down LTV by percentile bands. If you find that the top 1% of your customers are worth 10 times the average, or that the top 20% consistently double the LTV of the median customer, you’re uncovering patterns that can directly influence your marketing strategy.

With a tool like RetentionX integrated into Shopify, you can easily set up reporting to visualize these distributions. Whether it’s identifying the lifetime value of your top-tier “whale” customers or understanding what sets them apart from the rest, these insights guide you toward smarter decisions—ones that reflect the true shape of your customer base rather than a neat but misleading number.

From Insight to Action: Growing LTV by Targeting the Right Customers

Let’s take it one step further. What do you do with this knowledge?

1. Mirror Your Whales: Look for trends in that top slice of your customer base. Are they particularly drawn to certain product lines—perhaps your premium alpaca sweaters with intricate patterns? Is there a geographical cluster or an age group that’s overrepresented among your top-performing customers? Use these insights to fine-tune acquisition efforts, loyalty programs, and VIP offerings that speak directly to the kind of customer who can unlock exponential growth.

2. Rethink Acquisition Costs: On the flip side, if certain segments have chronically low LTV, it’s time to re-examine acquisition spend. Are you pumping budget into channels that attract bargain hunters who buy once and never return? Consider re-allocating that spend. Every dollar you divert from low-quality acquisition toward strategies that attract or nurture high-value segments becomes an investment in sustainable growth.

Bottom Line: Your Strategy Should Reflect Reality

No two brands are the same, and no brand’s customers split evenly into neat averages. By understanding your actual customer concentration, you gain the clarity you need to act. Prioritize building a base of high-value customers, refine acquisition strategies to focus on people who’ll stick around, and watch as your LTV—and ultimately, your profitability—rises naturally.

Want to discuss these strategies in more detail? Let’s connect and map out a plan tailored to your specific customer landscape.

That’s it for this edition!

Any questions or topics you'd like to see me cover in the future? Just shoot me a DM or an email!

Cheers,

Alex