As the ad costs to drive sales keep going higher, at some point you’ve to understand and work on the lifetime value of your customer. Otherwise, you’ll not stay competitive and will be crushed away.
You pay Facebook or other platforms a certain amount to display your ads to people who are interested in a certain “interest or a keyword”. At some point you realize that the cost per acquisition has gotten so high that after paying for acquisition cost, cost of goods sold, and other infrastructure costs such as fee for shopify/server and other plugins etc, you’re losing money.
Sometimes after optimizations of all kinds on the ad level as well as on the landing page, you’ll realize that you’re still losing money. How can that happen? How could your competitors by bidding so high? How can their business model work if they are spending higher than you to acquire customer. The simple answer lies in LTV: Lifetime value. And LTV should always be higher than CPA (cost per acquisition).
If your business model is designed such that you acquire a customer who would pay you once only, your revenue model is limiting you to compete. The reason why that happens is because your competitors are now betting on the lifetime value of a customer. They are interested in recurring purchases, subscriptions, and in summary to acquire user once, and monetize him again and again.
Other buyers of ads are bidding higher in order to purchase data that they can use later to either bring the bids lower, or use it elsewhere to generate revenue.
To conclude, in this day and age, if your business doesn’t account for the lifetime value of the customer, you’re simply not competitive.