Discover how measuring Customer Lifetime Value (CLTV or CLV) makes Return on Ad Spend (ROAS) more meaningful when marketers connect goals, tracking, and business data to prove the actual value of advertising.
As a marketing leader, you may obsess over ROAS or feel the pressure from above to do so. In many brand scenarios, using ROAS results without incorporating CLV can be short-sighted. Including both is key to goal setting, tracking, and proving results or failure.
What is Customer Lifetime Value (CLV)?
At this point, we are all familiar with ROAS and its value. An important KPI used to evaluate the success of an ad campaign or overall advertising strategy. The cost of the ad campaign is deducted from the revenue it generates.
Customer Lifetime Value (CLV) may be less well-known or used less often. The total revenue a business expects from a customer over the lifetime of their relationship. You measure CLV by multiplying the average purchase value, the purchase frequency, and the estimated average length of the customer's lifespan.
CLV is more predictive than single-purchase metrics because it captures long-term customer value rather than short-term revenue.
We will dig deeper into the differences between Gross CLV and Net CLV for those who require more exact data for their purposes.
How CLV Makes ROAS Meaningful
Without measuring CLV, return on ad spend can be misleading. Often, the initial purchase can look profitable when it may not be, or vice versa. The scenarios below show marketers why they must:
- Look past first-purchase ROAS.
- Use CLV to guide acquisition cost thresholds.
- Share internal data with agencies to ensure campaign reporting matches actual business results.
Below are four different industry examples that provide directionally accurate ranges, not precise benchmarks. Actual retention costs vary widely by industry, business model, channel mix, and internal priorities, efficiencies, and technology.
The point is less about the exact dollar figure and more about sharing how marketers can move from gross CLV → net CLV → ROAS by factoring in real business costs.
*Example Data Scenarios
1. Subscription Streaming Platform Example
- Ad Spend: $50 to acquire a new subscriber
- First-Month Revenue: $10 (looks like a terrible ROAS of 0.2:1)
- Average Subscription Length: 24 months
- Average Monthly Revenue per Subscriber: $10
- CLV: $240
Outcome: If you only measured initial ROAS, the campaign looks unprofitable. But factoring in CLV, that $50 investment returns $240 over 2 years, yielding a true ROAS of 4.8:1.
2. E-commerce Apparel Brand Example
- Ad Spend per New Customer: $25
- Average First Order Value: $40 (short-term ROAS = 1.6:1, looks fine)
- Repeat Purchase Rate: 40% of customers make a second $40 order within 6 months
- Customer Retention: 20% continue to purchase quarterly for 2 years
- CLV (average): $300
Outcome: A campaign judged only by the first purchase ROAS misses the bigger picture. With CLV factored in, the actual return is closer to 12:1, showing why higher upfront spend is justified.
3. Credit Union Example
- Ad Spend per New Member: $200
- Initial Revenue (checking account + debit card fees): $50 in year 1 (negative ROAS of 0.25:1)
- Average Member Lifetime: 15 years
- Average Profit per Year: $150 (loans, credit cards, deposits, fees)
- CLV: $2,250
Outcome: Without CLV, it looks like every new member is a costly loss in year one. With CLV, that $200 investment yields $2,250 over the lifetime, making the true ROAS 11.25:1.
4. Regional Hospital System Example
- Ad Spend per New Patient Acquisition: $400
- Initial Procedure Revenue: $500 (ROAS looks okay at 1.25:1)
- Average Ongoing Value: Patients typically generate $1,500 annually for ongoing care and services, with an average relationship length of 10 years
- CLV: $15,000
Outcome: Based on the initial procedure, it would barely break even. With CLV, each new patient delivers a significant long-term return, making media investment easier to justify.
Scenarios not based on real examples.
The Impact of CLTV on Goals, Tracking, and Reporting
Measuring results based on CLTV may change acquisition goals. Depending on the outcome, you may be willing to pay more upfront if lifetime value justifies it. You may not have if you just measured success by ROAS.
Accurate tracking and reporting require connected media metrics, along with internal sales and customer data, to ensure all relevant data is accounted for when measuring results. CLTV will shift reporting from a campaign-only or one-off approach to a total business growth approach.
4 Ways to Measure CLV Effectively
As with all marketing programs, marketers should identify all sources, processes, tools, goals, and challenges prior to implementation to ensure accuracy and reduce post-campaign complications.
- Data sources: CRM, POS, e-commerce, subscription data, etc.
- Segmentation by customer type, acquisition channel, geography, etc.
- Tools/approaches: predictive modeling, AI-enhanced analytics, cohort analysis
- Common challenges like data silos, incomplete attribution, and a lack of internal reporting discipline
Diving deeper into accurate data and outcomes, marketers may consider Gross versus Net outcomes. The Net takes into account the additional cost to retain customers over their lifetimes. Otherwise, campaign reporting risks overstating ROI.
CLV without costs equals potential revenue. CLTV with costs equals actual profitability. Marketers should partner with internal departments like finance and operations to capture accurate customer retention costs.
When running the formula to include Net CLV, include retention/servicing costs, which can include:
- Ongoing marketing (email, loyalty programs, remarketing)
- Customer support and account management
- Discounts, loyalty rewards, or promotional incentives
- Operational costs (shipping, returns, servicing, infrastructure)
- Additional costs from other internal departments
Basic CLV Formula (simplified):
CLV = (Average Purchase Value × Purchase Frequency × Customer Lifespan)
More Accurate CLV Formula (with costs):
CLV = (Customer Revenue × Gross Margin %) – (Acquisition Cost + Retention/Servicing Costs)
Reviewing the industry examples above, if we take into account Net CLV, the story changes.
*How This Affects the Examples
1. Subscription Service
- $240 gross revenue over 24 months
- Subtract $40 in churn-prevention discounts + $20 in ongoing support = $180 net
- Net CLV drops from $240 to $180
- Adjusted ROAS = $180 ÷ $50 ad spend = 3.6:1, still strong
2. Retail Brand
- $300 gross CLV
- Loyalty emails, remarketing, and free shipping promotions total $60 over the customer’s lifetime.
- Net CLV = $240
- Adjusted ROAS = $240 ÷ $25 ad spend = 9.6:1, still much better than first-order ROAS
3. Credit Union
- $2,250 gross CLV
- Annual servicing costs, branch access, and promotional incentives = $750 over lifetime
- Net CLV = $1,500
- Adjusted ROAS = $1,500 ÷ $200 ad spend = 7.5:1 (still very strong, but more realistic)
4. Healthcare System
- $15,000 gross CLV
- Ongoing care costs, patient outreach, and insurance administration = $5,000 over lifetime
- Net CLV = $10,000
- Adjusted ROAS = $10,000 ÷ $400 ad spend = 25:1, still highly profitable
These are directionally accurate ranges, not precise benchmarks. Ongoing costs are estimates based on typical industry patterns to illustrate how gross CLTV can differ from net CLTV.
Why Marketers Should Share More
When brand marketers rely on external partners to manage campaigns, it is critical that they share internal data as well. Agencies can only optimize to the data they see. Transparency between client and agency unlocks smarter decisions and stronger proof of ROI.
Reporting outcomes are only as accurate as the data that clients provide their agencies. Many agencies can deliver final reporting results when clients share more than business goals. Disclosing margins, retention rates, churn, and internal pricing enables agency partners to provide the most accurate outcomes, telling the true story of campaigns on an individual and annual basis to support marketers’ obligations to stakeholders and future budget submissions.
What Marketers Need to Know to Win
The marketer’s role is not just to run ads, but to connect media spend to customer growth, where possible. Internal collaboration between marketing, finance, and operations is key to ensuring accuracy.
CLV and ROAS need to work together for smarter budget allocation, whether using Gross or Net numbers. This process reframes ROAS not just as a campaign metric, but as a customer growth metric when paired with CLV.
Embrace transparency and data sharing with approved partners. The extent to which knowledge of results can be amplified has exponential benefits for future planning, decision-making, and budget management.
The more you know about your customer lifetime value, the more powerful your advertising strategy becomes.
*Examples created by AI.
