Rethinking Ad Success: Why Retailers Should Prioritize Lifetime Value Over Conversions
In baseball, player success is measured in statistics like batting average, on-base percentage and runs batted in. Advertising has its own metrics for success (as many as in baseball), from leads generated to total engagement, cost per acquisition to cost per thousand impressions. However, one that should be retired like a pitcher with a shaky arm is conversions.
An Unreliable Metric
We know how it works: someone interacts with your ad and takes action, whether they fill out a contact form, sign up for a newsletter, or actually make a purchase. The problem is there’s a rising tide of false ad conversions. According to a 2023 article from cybersecurity news site Cybertalk, one big reason is that over 40 percent of internet traffic is generated by bots and other web-crawling tools — and the cost of bot traffic, measured as digital ad fraud, reached nearly $100 billion in 2023. This wastes ad budgets and compromises the accuracy of analytics.
Conversion data in pay-per-click and display advertising becomes more uncertain with cookie-less tracking. In the wake of Google’s long-delayed phaseout of tracking cookies in late 2024, reliable metrics may be more dependent on major advertising players like Google and Meta. And few advertisers want to let the proverbial wolf guard the henhouse.
Taking the Long View
To avert this scenario, brands and businesses are increasingly evaluating advertising returns not solely based on the claims of dominant advertising sites and services but, more importantly, on actual purchase data from e-commerce platforms like Shopify and CRM.
These and other e-commerce platforms can identify whether customers are new or existing, assess their lifetime value (LTV) by way of previous purchases, and can track if customers come in organically and when they make return purchases. Purchase data analysis that focuses on a more broad LTV assessment — considering not only short-term return on advertising spend (ROAS) but also factoring in predicted future purchases — provides a far more accurate evaluation of the long-term value of customers.
Zooming in on Lifetime ROAS
As 2024 unfolds, we're seeing a number of trends in the ad industry. Advertisers spreading their digital spend across multiple channels. Generative artificial intelligence that connects with target audiences through better identification and messaging. Shoppable video ads that directly fulfill consumer desires. Big-name celebrities giving way to micro-influencers in ad campaigns. And the embrace of a once-elusive lifetime ROAS to maximize ad efficiencies like never before.
This big-picture view allows budget allocation towards ads that deliver the product’s value tailored to user needs, generating high LTV rather than simply promoting impulse purchases that don’t lead to long-term customer engagement. With its shining potential to serve as the Holy Grail of ad metrics, the question then becomes how to calculate lifetime ROAS.
Automated aggregation tools are essential to put all the pieces together. This enables purchase data to be instantly linked with advertising delivery data. A central platform synthesizing data from multiple sources and campaigns allows the tracking of metrics such as new user ROAS and existing user ROAS. If the parameters can be finely tuned, it's possible to zoom in on a fairly accurate evaluation of lifetime ROAS.
Since lifetime ROAS may take a considerable amount of time to estimate in daily operations, it then becomes necessary to calculate the projected LTV based on past performance. In order to make accurate predictions based on historical data, AI tools can help forecast these consumer purchasing trends into the future. With this, an automated system can fine-tune ad budgets, continually redirecting funds where they have the greatest impact, whether Google, Facebook, TikTok, Instagram, or X (formerly Twitter). This helps advertisers to invest in better-performing ads determined by lifetime ROAS instead of traditional one-time ROAS.
In an ever-competitive advertising landscape where fickle consumers are increasingly harder to identify and engage, vesting your faith in conversion data is a false promise. Prioritizing long-term returns based on lifetime ROAS can ensure longevity for brands.
Mitsunaga Kikuchi is founder and CEO of Shirofune, the digital advertising management tool that automates ad campaigns through an easy-to-use interface for management, budgeting, monitoring and analytics.
Mitsunaga Kikuchi is founder and CEO of Shirofune, the digital advertising management tool that automates ad campaigns through an easy-to-use interface for management, budgeting, monitoring and analytics.
