Why Lifetime Value Is Critical When Calculating ROI

Lifetime value refers to the value a customer brings a business over their entire life as a customer, NOT just through their first transaction with you. Many businesses only think in terms of first transaction value and call it a day. But the customer life can be far more fruitful than that, so to accurately calculate return on investment, we need to understand the full return. 

For example, we worked with one client to set up a tracking a reporting system for the paid search campaign (PPC). Previously, we would only attribute the first sale generated from a PPC click back to the campaign. In reality, these customers would come back several times, usually from other channels, to make additional purchases. Since that customer came from the PPC campaign, PPC should continue to get credit for incremental sales made. 

Remember that chart at the beginning of this post showing $500k in revenue on $112k spend? This client had achieved the 5:1 revenue to spend ratio, but that’s not the whole story. Prior to adding repeat purchases to this chart, the return on PPC looked a lot different. And it wasn’t pretty.

Leave a Reply

Your email address will not be published. Required fields are marked *