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Learning Google Ads: Customer Lifetime Value: Biggest ROAS Mistakes


So what most advertisers do is, I'm gonna make this a different color is they are looking at just that first-time transaction. Now for most businesses, including ours, if we do a good job for our clients, they are going to come back. So it's a recurring income, or maybe a returning customer, right? A lot of the clients who we get for e-commerce, what they are working their ROAS on is just a one time purchase. They don't think, or they don't take into account, potentially some more purchases that the same customer is going to make if they were to come back. 

So let's say, this is what we call a Customer Lifetime Value.  Now, this does not mean that until the customer dies, it means that you need to look at it for a longer period of time, how long a customer stays with you. It could be 12 months, it could be 24 months. Most businesses, 12 months is good enough on average for two years. So let's rework these numbers on the basis of a customer lifetime value of potentially that same customer who spends a hundred dollars and then comes back four times in the next two years, yeah. 

Because you will have remarketing campaigns, you will have email marketing, you will have social media, you'll have lots of things going on to get your customer back because you paid that acquisition cost to Google or whichever platform you're advertising with. You don't want them to go away after just that first purchase. So what happens is, if keeping that average order value or conversion value the same and keeping all the other metrics that you know exactly the same, the conversion rate, etc, all we are doing is changing the conversion value, which is the customer lifetime value.

Now you've been running, if you've been running your business and you know that on average we are getting three or four orders after the first order, you have to take that into account and not just work on the first time order. Now, all of a sudden look at how competitive you are compared to that. If your competitors can only afford to pay $1 and 67 cents, whereas you can afford to pay 6.67 or 13.33 or $40, or all of these metrics, there is no way in the world your competitors can compete with you in the auction.  Every time you're going to win and your Ads are going to show up way more times than your competitors. So this is why it is absolutely critical and important that you take into account your customer lifetime value and not just work on the first transaction.

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