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Beyond ROAS: Why Customer Lifetime Value is your most important metric in 2025
In the quest for effective digital marketing, ROAS (Return On Ad Spend) has long been the holy grail for e-commerce companies. But in 2025, we see a fundamental shift among top performers: They are no longer primarily driven by ROAS, but by customer lifetime value. This article explores why this shift is crucial for long-term growth and how you can implement an LTV-centric approach in your business.
The fatal ROAS trap
"Control only what your ROAS/POAS is without calculating CAC and your customer's LTV (Life time value)."
According to experts, this is one of the most common and damaging mistakes e-commerce companies will make in 2025. The image of a child with a horrified expression next to "ROAS 1.2" perfectly illustrates the panic many marketing managers feel when their ROAS numbers fall short of expectations.
But is a ROAS of 1.2, where you get 1.2 dollars back for every dollar spent on ads, really that disastrous? The answer depends entirely on the context - specifically customer lifetime value.
From ROAS to CAC:LTV ratio
The critical transformation is about shifting focus from ROAS to the relationship between CAC (Customer Acquisition Cost) and LTV (Lifetime Value):
"Go for CAC and calculate it against your customer's life time value after they buy a product on your webshop."
Let's illustrate with an example:
Scenario 1: ROAS perspective
You spend 500 kr. on ads
Generate 600 kr. in sales
ROAS = 1.2 (often considered unsatisfactory)
Scenario 2: LTV perspective
You spend 500 kr. on acquiring a customer (CAC)
Customer buys for 600 kr. the first time
But over 2 years, the same customer buys an additional 2400 kr.
Total LTV = 3000 kr.
CAC:LTV ratio = 1:6 (a highly profitable customer)
This simple example shows why a narrow focus on ROAS can lead to wrong decisions. The immediate ROAS of 1.2 only tells a small part of the story.
Building blocks for an LTV-centric strategy
Shifting to an LTV perspective requires more than just a new way of calculating ROI. It requires a holistic approach to your marketing strategy with a focus on the long-term value of your customers:
Robust win-back/retention program
"Win-back/retention requires email, SMS, retargeting. Be active with organic growth on social media - and speak to your audience!"
An effective retention strategy includes:
Personalized email flows based on purchase history
SMS marketing with relevant offers
Intelligent retargeting that focuses on customer interests
Consistent organic social media presence
Strategic budget allocation throughout the funnel
The best performing companies have shifted from a sales-focused to a holistic approach to their sales funnel:
Previous budget allocation:
Awareness: 10
Commitment: 1%.
Sales: 89%
Resulting ROAS: 3.9
Current budget allocation at top performers:
Awareness: 15%.
Commitment: 10
Sales: 75% of sales
Resulting ROAS: 4.3 (10% higher!)
This shift is about recognizing that branding and engagement leads to higher customer loyalty and thus higher lifetime value in the long run.
Segmented customer strategy based on value
Not all customers have the same potential value to your business. An LTV-centric approach requires differentiated strategies based on customer segments:
High-value loyalists: Customers with high purchase frequency and order value. Focus on VIP treatment, exclusive offers and community building.
Midrange repeat customers: Regular buyers with moderate order value. Target cross-selling and upgrade opportunities.
One-time shoppers: Customers who have only bought once. Prioritize first-time buyer flows and win-back campaigns.
By tailoring your communication and advertising strategy to these segments, you maximize each customer's potential value.
Practical steps for implementing an LTV-centric approach
Calculate the LTV of your current customers
Before you can optimize for LTV, you need to have a clear picture of your current situation:
Calculate average order value: Total revenue / Number of orders
Calculate purchase frequency: Number of orders / Number of unique customers
Calculate customer loyalty (in years): How long does the average customer stay active?
Calculate LTV: Average order value × Purchase frequency × Customer loyalty
These numbers give you a baseline to understand your current performance and identify opportunities for improvement.
Implement predictive LTV models
Advanced companies are now using predictive analytics to predict potential LTV early in the customer relationship:
RFM analysis: Ranking customers based on Recency, Frequency and Monetary value.
Cohort analysis: Tracking the behavior of customer groups over time to identify trends.
Machine learning models: Predicting future purchases based on historical data and customer profiles.
These tools allow proactive investment in customers with high LTV potential.
Balance short-term performance with long-term value
An LTV-centric approach doesn't mean you should completely ignore short-term metrics like ROAS. The key is to find the right balance:
"Manage your paid social budgets based on customer LTV, not just ROAS/POAS."
This can be implemented through:
Segmented budget strategies: Different ROAS targets for different customer segments based on their LTV potential.
Differentiated KPIs through the funnel: Awareness campaigns are measured by reach and engagement, while conversion campaigns are measured by CAC:LTV ratio rather than raw ROAS.
Patience with new initiatives: Give branding initiatives and new customer segments time to mature before their full value can be assessed.
Case studies: Companies mastering the LTV approach
Case Study 1: Subscription-based beauty business
A Scandinavian beauty company shifted from focusing primarily on customer acquisition to an LTV-centric approach:
Before: ROAS target of 2.5, high churn rate
Change: Implemented personalized product recommendations, loyalty program and segmented communication
After: Accepted lower initial ROAS (1.8) but achieved 40% higher LTV and 30% lower churn rate
Case Study 2: Fashion e-commerce
A Danish fashion company restructured their advertising strategy based on customer segments:
Before: Same ROAS goal for all campaigns (3.0)
Change: Segmented budgets based on customers' LTV potential; accepted lower ROAS for high-value segments
After: 25% increase in total revenue and 15% higher average order value
The future of LTV optimization
While the shift from ROAS to LTV is already underway among top performers, we see more advanced trends on the horizon:
Integrated omnichannel LTV tracking: Linking online and offline touchpoints to create a complete picture of customer value.
Predictive churn prevention: Algorithms that identify churn warning signs before they manifest so that proactive retention initiatives can be implemented.
Value-based bidding on advertising: Bidding strategies on ad networks based on a customer's predicted LTV rather than immediate conversion value.
Conclusion
The shift from a narrow ROAS focus to a broader LTV-based approach represents a fundamental transformation in how successful e-commerce companies run their business in 2025.
By understanding the true value of your customers over time and structuring your marketing strategy accordingly, you can make more informed decisions about budget allocation, campaign optimization and customer communication.
Remember: A seemingly low ROAS can hide a highly profitable customer experience. Customer lifetime value is the true measure of successful e-commerce marketing in 2025 and beyond.
