Focusing on lifetime return on ad spend (ROAS) over short-term metrics
This article was based on the interview with Mitsunaga (Mitsu) Kikuchi, CEO of Shirofune and Rocco Baldasarre, Head of Business Development for Shirofune in the USA by Greg Kihlström, Marketing Measurement keynote speaker for The Agile Brand with Greg Kihlström podcast. Listen to the original episode here:
Marketers are often inundated with metrics that promise to gauge the success of their campaigns. Among these, Return on Ad Spend (ROAS) and Cost-Per-Acquisition (CPA) have emerged as the gold standards. While these metrics provide valuable insights into the immediate performance of advertising efforts, they can also lead to a narrow focus that overlooks the broader implications of customer engagement and long-term value. A shift towards emphasizing lifetime ROAS could significantly enhance marketing strategies and drive sustainable growth.
The Limitations of Short-Term Metrics
Short-term metrics like ROAS and CPA are designed to measure the immediate financial returns of advertising investments. On the surface, they appear to offer a clear picture of effectiveness; however, this perspective is inherently flawed. By concentrating solely on short-term gains, advertisers risk missing out on critical factors that contribute to long-term success. For example, a high ROAS might indicate a successful campaign, but if those customers do not return for repeat purchases, the initial investment may not yield sustainable profitability. This myopic view can lead brands to prioritize immediate sales over cultivating long-term relationships with their customers.
Moreover, the digital advertising landscape is rife with volatility. Consumer behavior can shift rapidly, influenced by myriad factors such as market trends, economic conditions, and technological advancements. Relying heavily on short-term metrics can result in reactive strategies that fail to account for these shifts, ultimately jeopardizing a brand’s ability to adapt and thrive in a competitive environment.
The Case for Lifetime ROAS
In contrast, focusing on lifetime ROAS shifts the paradigm from immediate returns to long-term customer value. This approach encourages marketers to consider the entire customer journey, from initial acquisition through retention and advocacy. By evaluating the total revenue generated by a customer over their lifetime, brands can gain a more comprehensive understanding of their advertising effectiveness.
Adopting a lifetime ROAS mindset allows marketers to prioritize customer relationships and brand loyalty. When brands invest in cultivating strong connections with their customers, they not only enhance the likelihood of repeat purchases but also increase the potential for referrals and positive word-of-mouth. This holistic view fosters a more sustainable business model, as loyal customers tend to spend more over time, reducing the overall cost of customer acquisition.
Implementing a Lifetime ROAS Strategy
To effectively implement a lifetime ROAS strategy, brands must first re-evaluate their current metrics and key performance indicators. This involves integrating customer lifetime value (CLV) into the advertising equation, which requires a more nuanced approach to data analysis. By leveraging advanced analytics and customer segmentation, marketers can identify high-value customers and tailor their campaigns accordingly.
Additionally, brands should focus on enhancing the customer experience at every touchpoint. This can involve personalized marketing efforts, exceptional customer service, and engaging content that resonates with target audiences. By fostering a positive experience, brands can encourage customer loyalty and increase the likelihood of repeat business.
While short-term metrics like ROAS and CPA serve a purpose in evaluating immediate advertising effectiveness, they should not overshadow the importance of lifetime ROAS. By shifting focus to long-term customer value, brands can create sustainable growth strategies that prioritize customer relationships and foster loyalty. As the digital advertising landscape continues to evolve, adopting a lifetime ROAS mindset will be essential for marketers seeking to navigate the complexities of consumer behavior and drive lasting success. Embracing this approach not only benefits the bottom line but also cultivates a more resilient and agile brand capable of thriving in the future.
