Why You Need to Optimise for Customer Lifetime Value

Lifetime value matters for B2B & B2C

Measuring and optimising performance marketing spend for CPA (cost per acquisition), CPL (cost per lead) and ROAS (return on ad spend) may seem like a smart option, but it has its limitations and one major drawback.

With a few notable exceptions — such as real estate and high-value infrastructure sales — most businesses don’t rely on customer payments in a single instance. For instance, repeat customers are worth more to an e-commerce business, and may often start with a single, low-value purchase, but then return increasingly often to make higher value purchases.

If you limit your reach based on the first conversion action alone, you risk missing out on the most valuable customers – the ones who return to your business and buy from you regularly.

Retail brand H&M increased their number of new customers 65% year-on-year — at a higher and more efficient ROAS — by adopting a customer lifecycle value-based performance marketing strategy.

Which businesses need to measure CLV?

A subscription service is the most obvious example where LTV (lifetime value) considerations matter significantly. Here, marketeers should multiple average subscription lifetime by average monthly subscription income, to estimate the average CLTV (customer lifetime value).

For B2B businesses that target a cost per lead, this is often based on an expected customer value. This is typically based on average project sizes, or contract monthly values & customer retention periods for professional services brands.

E-commerce, travel, sports and financial services brands also need to measure LTV and adjust their marketing & advertising strategies to target customers that represent a higher LTV, even if they come at a higher initial CPA or represent a negative first-purchase ROI.

Implications of CLV on advertising bid strategies

When optimising for customer lifetime value, the first and most important step is to reliably measure lifetime value. This information typically won’t be found on the website or e-commerce store itself. You are more likely to find CLV information from your CRM, ERP or order management systems.

Once an average or individual value has been established, you need to feed this back to your ad platforms. Since individual CLV cannot be established within the short lifespan of cookie-based tracking, this information will need to be provided programmatically. Options to do so may include:

• Lifetime value optimisation on Meta
• Offline conversion tracking
• Rules-based automation
• Manually adjusting target CPAs

Bid strategies can then be adjusted to optimise for the CLV-adjusted CPA or ROAS target, instead of the traditional targets. Higher-value audiences can also be created based on these figures, and targeted directly as well as via lookalikes.

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