Not All Revenue Is Created Equal: The Truth About CLV & Media Spend

Acquiring customers is easy. Keeping them profitably? That’s the real challenge.

This week, I’m explaining why CLV is still misunderstood, how CAC and ROAS affect it, and why most marketers misunderstand media allocation.

📌 Key takeaways:

• CLV isn’t static; it reflects your customer experience and the quality of your products and services.

• CAC without CLV context leads to bad decisions; acquisition and retention must be balanced.

• ROAS is not the whole story. Profitability and incrementality matter more than vanity metrics.

• Marketers often misallocate ad spend by chasing high ROAS instead of focusing on marginal efficiency.

📢 Read on for a deep dive, including insights from Witold Wrodarczyk on why most businesses fail at media optimization.

Hello World!

First, I’m about two years late to the newsletter party. I made this Substack in 2023 and didn’t do anything about it then. But, hey, life happens, and here I am today, writing my first newsletter entry on a very cloudy Sunday evening, watching boats coming and going on the Oresund from my window.

This past week, I’ve been sick. COVID, flu, or whatever we’re calling it these days. My kids, too (parents, you know the drill). So I stopped trying to be a hero, took my paracetamol, and rewatched The Big Bang Theory like a responsible adult.

But beyond the NyQuil-induced binge-watching, I’ve been thinking a lot about my career. If you know me, you know I’ve done a bit of everything: analytics, product, CRO, marketing. The upside? I have a broad, transferable skill set. The downside? I don’t fit neatly into a box, and at some point, I realized that not fitting anywhere can make things complicated.

I mean, 17-year-old me would roll her eyes and say, "Why fit in?" But 2025-me also knows that fitting in (at least a little) pays the bills. As we build our careers, we spend so much time optimizing ourselves: how we talk, how we learn, where we get our information, how we present ourselves. And don’t get me started on the influencer personal brand industrial complex (yes, I know the irony of me saying this, but if you know me, you know I couldn’t care less).

My thought process got me back in 2019 when I was a CLV Evangelist, the leader of the Customer Lifetime Value propaganda machine, standing on a soapbox daily, shouting into the void about how much time businesses waste chasing short-term metrics (ROAS, CVR, AOV) instead of looking at what actually sustains growth—Lifetime Value, Payback Period, and Unit Economics.

So, since I was once dubbed "The CLV Lady," what better way to kick off this first edition than by talking about Customer Lifetime Value? And I’m not doing it alone — Witold Wrodarczyk, CEO of Adequate, is joining me in this newsletter to discuss what is happening with CLV. (please make sure to connect with him asap - he is great!)

I am still testing the length of the newsletter, so I’d appreciate some feedback on it, but until then, let’s dive in; we have a lot to cover today.

Beyond the Mean

Why is CLV still misunderstood?

From 2018 to 2021, I was known as the "CLV Lady." Working with Valentin Radu at Omniconvert, I helped over 300 Shopify brands understand Customer Lifetime Value, retention strategies, and RFM segmentation. CLV wasn’t as mainstream as today, and industry leaders like Jim Novo, Drew Sanocki, and Kevin Hillstrom shaped my thinking about it.

See, I am not making this up :D

However, after years of talking about CLV, one thing is clear: CLV is still one of the most misunderstood metrics in business.

Companies either oversimplify or fail to use it strategically, treating it as a static number rather than a moving target reflecting business health.

A Brief History of CLV

The concept of CLV emerged as businesses moved beyond transactional thinking toward long-term customer relationships. As subscription models and eCommerce took off, CLV became a central metric for assessing business sustainability.

I cannot think about CLV without remembering what Jay Abraham said: There are three ways to grow a business:

1. Increase the number of customers.

2. Increase the average transaction value per customer.

3. Increase the frequency of purchases.

In theory, CLV is a synthesis of these three levers. By focusing on retention and customer behavior, businesses can grow sustainably without relying solely on costly acquisition efforts.

In practice, it’s a bit more complicated than that :)

For performance-oriented online marketers, CLV is particularly important. Measuring marketing effectiveness based solely on the revenue from a single transaction causes marketers to underestimate the actual conversion value and, consequently, the true ROAS of the campaign. As a result, the bidding strategy and marketing efforts may become too conservative, unnecessarily leaving room for competitors.

Common CLV Misconceptions… and Limitations

A common misconception is that CLV applies only to subscription-based businesses. In reality, it applies to any business where customers can return and make additional purchases, whether buying another item, a refill, consumables, accessories, a replacement for a used product, or an upgrade to a newer model.

Whenever the effort to retain a customer is lower than the effort to acquire a new one, CLV becomes one of the key metrics every business owner should understand.

When businesses first encounter CLV, they often see it as the ultimate north star metric. But the reality is more complicated.

CLV results from how well your brand delivers on its promises.

Poor product quality, delayed shipping, or inadequate support will shrink CLV regardless of how much you spend acquiring customers.

Often, marketers miscalculate CLV by dividing total revenue by the number of customers in a given period. Thanks, but no thanks, Neil Patel. Instead, they could use cohorts that align with the company’s investment horizon.

If cohort analysis is unfamiliar to you, in this case, a cohort refers to a group of customers who made their first purchase within a specific month or quarter. Instead of analyzing all customers together, we track these groups (cohorts) separately over time to observe their future purchasing behavior.

Here's a Cohort Analysis Example from Witold. As you can see, the stickiness rate of customers in a cohort tends to decrease. This is natural. However, a good customer experience and products will keep those numbers steadier than doing nothing to retain customers.

CLV isn’t static. Ongoing interactions influence it, meaning businesses must continuously invest in retention efforts.
Instead of thinking of CLV as a formula to chase, consider it a barometer of how well your overall customer experience is working.

There is no CLV without CAC.

The Customer Acquisition Cost (CAC) is oversimplified if CLV is misunderstood. CAC is far more than ad spend. A more accurate calculation includes:

• Overhead: Salaries for your marketing and sales teams, tools, and platforms.

• Creative Development: Costs for ad creatives, photography, and video production.

• Operational Expenses: Discounts, promotions, and onboarding costs for new customers.

Most businesses focus exclusively on media spend, so CAC can often look artificially low. This miscalculation has long-term impacts on profitability and decision-making.

Suppose there is one thing I want you to remember from this newsletter. In that case, it is this: CLV cannot live without CAC because their relationship answers the question: To what extent is it worth investing in acquiring customers based on how much they spend with you over time?

CLV and CAC: The Necessary Balance

Many marketers think, "Hurray, we have a high CLV so we can afford a much higher conversion cost!" Well, it doesn’t work that way. You have to keep in mind that CAC applies only to new transactions. If you assign a higher value to each conversion, you overestimate your ROAS and potentially overpay for marketing.

Does this mean that returning client conversions don’t matter? Not exactly. Besides CAC, there’s also CRC (Customer Retention Cost). That’s why a portion of CLV should also be attributed to returning clients.

Witold explains that, compared to standard conversion attribution, where the value of each conversion is recorded the same way (e.g., as revenue from a purchase), we need to assign a higher value to new customers while relatively decreasing the value of returning customer conversions. LTV should be allocated between "new" and "returning" conversions to reflect the difference between CAC and CRC.

You first need to track their conversions separately to attribute different values to new and returning customers. Otherwise, you won’t know which campaign is driving actual customer acquisition and which is merely bringing back existing customers. Unfortunately, the "new_customer" conversion attribute is still uncommon.

The ratio of CLV to CAC is one of the most precise indicators of whether your business is growing efficiently.

This ratio can tell you:

• How well you retain customers.

• Whether acquisition strategies are sustainable.

• Where to optimize marketing efforts.

Healthy Benchmark: A CLV:CAC ratio of 3:1 is generally considered healthy. For example, if CLV is $300 and CAC is $100, the ratio is 3:1.

Payback Period: This metric shows how quickly your CAC is recouped. A short payback period indicates faster profitability, which is essential for cash flow. For example, a CAC of $100 and a monthly revenue of $20 would give a payback period of five months.

Understanding this ratio in depth allows you to make informed decisions about scaling acquisition efforts or investing more in retention strategies.

ROAS—A Chapter, Not the Whole Story

Most businesses go wrong when focusing on ROAS (Return on Ad Spend) in isolation. They treat cusotomer acquisition as a standalone game, optimizing for the cheapest clicks and conversions without thinking about what happens next. ROAS might tell you how well your ads perform, but without CLV, it’s just a vanity metric.

It’s easy to see why businesses love ROAS. It’s quick, straightforward, and tied directly to ad platforms. But here’s the issue: ROAS often tells only part of the story.

As mentioned, this first newsletter edition has very meaningful contributions from Witold Wrodarczyk (don’t forget to follow him), who has spent years analyzing marketing strategies across industries.

He pointed out that ROAS is often over-relied on because it’s an easy number to track. “It gives the illusion of control,” Witold said, “but it ignores the profitability and incremental impact of marketing efforts and doesn’t account for what would have happened without the ad spend.”

This is what Witold shared with me:

ROAS measures revenue, not profit. This can make unprofitable campaigns look successful. Different products may have varying profitability, and using revenue as the conversion value can distort the true business impact of conversions. Some items generate high revenue but minimal profit—and guess what? They usually convert better. As a result, campaign optimization algorithms (and marketers themselves) tend to focus on low-hanging fruit, such as low-margin products.

Some marketers attempt to address this issue by segmenting campaigns into high-profit, medium-profit, and low-profit products. However, this approach overlooks that the products clicked on often differ from those purchased.

The good thing is that recently, using margin rather than revenue as the conversion value has become slowly but increasingly popular, leading marketers to adopt POAS (Profit On Ad Spend) instead of ROAS. Are all boxes ticked? Not exactly.

The elephant in the room is incrementality. Conversion tracking simply reports that a conversion occurred after an ad was clicked or displayed (and in the latter case, it doesn’t always mean the ad was actually viewed). However, it does not prove that the ad caused the conversion. We don’t know whether the conversion would have happened anyway if the ad had not been displayed.

This is another example of a well-known cognitive bias: correlation does not imply causation. Some ad views or clicks often have no real impact on revenue, and when advertisers turn them off, nothing significant happens.

The usual suspects in this case are:

• Brand bidding campaigns on Google often cannibalize organic traffic, inflating ROAS figures.

• Remarketing ads frequently claim credit for conversions that would have happened regardless (especially post-view conversions).

• Conversions attributed to traffic from discount code websites often exaggerate the actual impact on revenue, as customers frequently search for these vouchers after encountering the “Do you have a discount code?” field at checkout.

This issue isn’t limited to advertising—SEO faces the same challenge. Growing organic traffic looks good on reports, but if 80% of that traffic comes from branded searches, only 20% comes from generic terms—likely contributing roughly 5% of total conversions. In that case, is the SEO budget truly justified?

The promise of data-driven attribution modeling to measure counterfactual impact has been overstated. Observing correlations cannot measure incrementality. The only reliable way to do so is by using randomized controlled trials (RCTs) to isolate the true impact of marketing.

The good news is that Timo Dechau and Barbara Galiza created an Attribution Masterclass that can help you with this. Make sure to check it out.

Today, geo-testing is the most effective approach, as identifier-based user segmentation (e.g., cookies) is no longer reliable—if it ever indeed was.

For more information, check out this case study on the effectiveness of Google Ads.

The Problem with ROAS-Driven Budget Allocation

Tests have clear limitations, mainly when dealing with statistical significance in volatile revenue environments. Even when a test shows a strong correlation, it doesn't guarantee reliable measurement, especially at a granular level. This is why incremental tests often yield inconclusive results or confidence intervals too wide to guide actionable decisions.

But let’s assume for a moment that we achieve near-perfect conversion attribution, using Profit on Ad Spend (POAS) with CLV adjustments to reflect each marketing channel's actual contribution to revenue growth. Even then, the optimization process doesn’t end there.

Most marketers expect all channels to drive conversions at the same efficiency level. They set targets for CPA, ROAS, or POAS and shift budgets accordingly, allocating more to high-performing channels while cutting underperformers. This approach seems rational but fundamentally flawed because it ignores marginal ROAS.

Why Marginal ROAS Matters

ROAS alone is static, giving an average efficiency metric at a fixed spending level. Marginal ROAS, on the other hand, measures the efficiency of additional budget spending. Shifting budgets based on average ROAS without considering marginal efficiency risks misallocating spending and reducing overall profitability.

Here’s a practical example:

Scenario—Google Ads vs. Social Media

A marketer sees that:

• Google Ads delivers a ROAS of 10

• Social media ads are underperforming, with a ROAS of 6

Following the typical budget reallocation logic, they decided to turn off social media ads and shift their spending to Google Ads.

Now, as they increase bids on Google Ads by 10% to gain more traffic, they enter more aggressive auctions, driving up CPCs and competing against advertisers with deeper pockets. The result? Google Ads' ROAS drops from 10 to 9.

Let’s break down the numbers:

The real issue is that the marginal ROAS for that additional spend was 4.5, meaning we effectively paid a much higher price for those incremental conversions. Suddenly, the social media campaign with an ROAS of 6 doesn’t look so bad.

This is a textbook example of the law of diminishing returns in action. The more we push a campaign to capture additional traffic, the higher the marginal cost. The actual efficiency of that spend depends on price elasticity, which varies across different campaigns and audiences.

The Real Optimization Strategy

Enforcing the same ROAS target across all channels is a flawed strategy. Instead, we should optimize for marginal ROAS parity—allocating the budget to ensure similar marginal efficiency across campaigns rather than forcing an arbitrary average ROAS target.

• Some channels will be more efficient at lower spending levels but collapse as budgets scale.

• Others may start with a lower average ROAS but maintain efficiency even as spending increases.

A smarter approach is to analyze marginal returns per channel and scale only where incremental efficiency holds. This way, we avoid the trap of over-investing in "high-performing" channels while starving others that could still contribute profitably at a marginal level.

The takeaway? Optimizing for sustainable growth requires looking beyond average ROAS and focusing on incremental efficiency. Anything else is just a short-term numbers game.

So, how do we do media optimization right?

If you reduce the optimization process to a black-box algorithmic attribution and ROAS, you might claim to follow best-in-class marketing practices—but that wouldn't be the truth. These are merely small pieces of a much larger puzzle.

To drive real impact, consider broader factors, starting with game-changers like Customer Lifetime Value (CLV) and incrementality. Instead of focusing solely on ROAS, a more practical approach is POAS. Beyond that, proper optimization involves fine-tuning marginal values and bidding at the portfolio level rather than optimizing individual keywords or ads in isolation.

To get CLV right, it’s essential to shift your perspective. CLV isn’t just a number; it’s the outcome of consistent, deliberate strategies that span the entire customer journey.

Key Steps to Improve CLV:

• Use loyalty programs, personalized offers, and post-purchase follow-ups to keep customers engaged.

• Identify high-value customers and tailor campaigns specifically for them.

• Audit the customer journey regularly to identify and remove friction points.

• Track customer behavior over time to understand retention trends and refine strategies.

• Combine quantitative data with qualitative insights—customer interviews and surveys can uncover blind spots analytics alone might miss.

Why This Matters

Identifying the actual business value of touchpoints is key to making smart marketing decisions—especially regarding media budget allocation and choosing the right marketing activities. Without this, you risk focusing on areas that create an illusion of success while algorithms chase only low-hanging fruit to meet campaign goals without driving real sales growth.

This might look good in reports, but it delivers no real impact. Sooner or later, the question will arise: If our marketing is so profitable, why isn’t our business growing?

To truly optimize digital media spend, businesses need a more sophisticated approach:

1. Account for CLV When Scaling Spend

   • High CLV should inform how aggressively you invest in acquisition.

   • Without this, businesses risk overpaying for new customers while neglecting retention.

2. Measure What’s Incremental

   • ROAS alone doesn’t tell you if your ad spend drove conversions.

   • Use geo-testing and RCTs to determine whether customers would have converted anyway.

3. Optimize at the Portfolio Level

   • Calculate marginal efficiency across campaigns instead of setting the same ROAS target for all channels.

   • Sometimes, reallocating the budget from an “underperforming” channel might hurt total efficiency rather than help it.

Connecting the Dots

At its core, this conversation isn’t just about CLV, CAC, or ROAS as individual metrics. It’s about how they interact—how acquisition, retention, and profitability work together (or don’t) to drive real business growth.

Too often, businesses focus on short-term wins without considering the long-term impact. They chase cheap conversions, celebrate low CAC, and optimize media spending for vanity metrics—without ever asking:

Are we actually growing, or are we just getting better at spending money?

That’s why CLV matters, not as a number but as a lens to evaluate whether marketing, media, and business strategy are truly aligned.

Witold and I approach the same issue from different perspectives: I focus on value, and he focuses on efficiency, but we ultimately have the same conversation.

If you don’t align acquisition with retention, you’re not building a business; you’re just keeping the machine running.

What’s on my radar?

🎙️ Season 4 of Standard Deviation Podcast kicks off with an unhinged, completely off-the-rails episode where Simo and I start with analytics, bartering pigeons, and debating the economics of happy hour poker. Watch the chaos unfold:
🔗 Listen here | 🔗 Watch here

🎙️ From A to B Podcast – Shiva Manjunath & Bhav Patel discuss intuition. Really? Should we use our gut feeling? 🔗 Check it out

📢 MeasureCamp Helsinki – Last ticket release is Feb 11, 2025, at 1:00 PM. 🔗 Add to calendar

📢 ExperimentNation CRO Salary Report – Help the industry get fair pay by filling out this year’s survey. 🔗 Participate here

Final Thoughts & A Quick Favor

That’s it for the first edition of Beyond the Mean! 🎉

I’m still testing the length and format, so I’d love your feedback:

• Was it too long or just right?

• What topics would you like to see more of?

If you found this useful, share it with someone who needs to rethink CLV. The more, the merrier.

Huge shoutout to Witold for contributing to this edition. Follow him for more insights.

See you next week!

— Juliana