It can be tempting, when measuring the success of your search marketing campaigns, to judge them based simply on your Return on Advertising Spend (ROAS). Or, you might want to concentrate solely on winning new customers and measure your campaign success by cost per new customer or just the number of new customers.
But, we think the true value of your campaigns is slightly more complicated. Gaining lots of new customers might sound great, but they can be very expensive to attract. And let’s not forget about returning customers. Sure they may not spend as much per purchase as new customers, but you wouldn’t want them buying a competitor’s product.
To truly understand, and be able to optimize, the value of your search marketing campaigns, you need to calculate the Lifetime Return on Investment (ROI) of each market or campaign. Lifetime ROI is primarily driven by two factors:
- Expected market specific lifetime values (Customer LTV)
- Campaign efficiency based on marketing investment (ex. ROAS)
A unified approach is essential to know how much you should be investing in retention vs new customer acquisition. Let’s look at each of those factors, in turn, starting with Customer Lifetime Value (LTV).