From Unprofitable to Unstoppable: When Negative Return on Ad Spend is Acceptable

Let’s talk about something that might raise a few eyebrows: the idea of losing money to make money. Before you close this tab, I promise this isn’t some questionable business strategy – it’s about understanding when a negative Return on Ad Spend (ROAS) can actually be your foundation for long-term profitability. Especially if you’ve got your eye on that bigger prize down the road.

I have this conversation with many business owners who struggle to rationalize this concept, so I will do my best to cover the important steps so it all makes sense. Understandably, it’s all too easy to fixate on the seemingly straightforward metric of Return on Ad Spend (ROAS) while missing the bigger picture.

It’s important to point out that this strategy doesn’t apply to businesses with a short customer lifecycle or focus on one-off transactions. The idea behind this strategy is to foster long-term relationships with customers. So if you sell wedding-themed gifts, I’m sorry, you’re S.O.L.

Playing the Long Game

The real competitive advantage comes from squeezing every ounce of value from each customer you acquire. This means looking beyond that initial purchase and building a strategy that maximizes customer value over time.

When you can afford to spend more to acquire customers than your competitors, you gain significant leverage in the advertising marketplace. This will allow you to bid more aggressively, reach better placements, and ultimately capture more market share.

Let’s get through the jargon first

Here are the three important metrics that I will be dropping throughout this article:

• ROAS (Return on ad spend): How much revenue is earned for every dollar spent on advertising. For example, if you spend $500 on ads and generate $2,000 in sales, your ROAS would be 4x.

• CLV (Customer Lifetime Value): The total revenue you expect a customer to generate over the duration of their relationship with your brand.

• LTV (Lifetime Value): This is the aggregate value of all customers.

• CPA (Cost Per Acquisition): Refers to the amount spent to acquire a single paying customer once they made their first purchase.

Email/SMS Cross-Selling and Upselling Campaigns

This is your chance to guide customers toward complementary products and premium options at virtually no cost.

What Works:

• Post-purchase recommendations: Strike while the iron is hot by sending personalized product recommendations within 48 hours of purchase. This timing is crucial because customer engagement is highest right after they buy. A customer who just bought a yoga mat is primed to hear about your yoga blocks or straps.

• “Complete the look” emails: These work exceptionally well for fashion and home decor brands. Show customers how their purchased item pairs with other products. Someone who bought dress shoes might be interested in matching belts, socks, or a leather care kit.

• “Customers also bought” suggestions: Leverage your customer data to show real purchasing patterns. This social proof is powerful – if 70% of customers who bought your face wash also bought your toner, that’s compelling information for new customers.

• Premium product upgrade offers: Time these emails based on usage patterns. If someone’s been using your basic skincare line for three months, they might be ready to upgrade to your premium range. Show them the additional benefits and include customer success stories.

Real Example: Sephora’s “We Think You’ll Love” emails are perfectly timed after purchase. Buy a foundation? They’ll email you about their best-selling primer or setting powder, complete with reviews from customers with similar skin types.

Loyalty Programs to Build Engagement

Turn buyers into brand advocates! Offering early access, exclusive products, or meaningful rewards creates a compelling reason for your customers to stick around.

What Works:

• Early access to sales: Give loyalty members a 24-hour head start on major sales. This drives program sign-ups and makes members feel valued. Plus, it creates urgency – no one wants to miss out on limited inventory when they have first access.

• Member-only exclusive products: Launch products exclusively to your loyalty program members first. This strategy works particularly well for lifestyle brands, where exclusivity drives immediate action and encourages program enrollment.

• Points/rewards progress updates: Keep members engaged by showing how close they are to their next reward level. “You’re just 100 points away from Gold status!” creates a clear goal and motivates additional purchases. Include specific rewards they can unlock.

• Birthday perks and anniversary rewards: Celebrate your customers’ special days with exclusive offers that make them feel valued. Time these with countdowns and reminders to drive anticipation and engagement.

Real Example: Gymshark’s loyalty program emails are a masterclass in community building. Their emails don’t just push products – they combine exclusive early access to collections, member-only sales events, and VIP workout content. Their “First Access” emails for new launches create massive FOMO, often leading to products selling out during the member-only window before they even reach the general public.

Replenishment and Win-Back Campaigns

Don’t wait for customers to remember they need your product again. Be proactive with reminders and well-timed win-back campaigns that will keep you top of mind when customers are most likely to buy.

What Works:

• Replenishment reminders: Time these based on average product usage and customer purchase history. If your coffee beans typically last two weeks, send a reminder on day 12. Include easy reorder links and perhaps a small loyalty discount to encourage immediate action.

• “Running low?” emails: Add urgency to replenishment reminders with limited-time offers that drive quick action. “Your moisturizer should be running low – reorder in the next 48 hours to save 15%” combines timing with incentive.

• Win-back campaigns: Target customers who haven’t purchased in a while with personalized offers based on their purchase history. “We missed you! Here’s 20% off your favorite shampoo” shows you remember their preferences while providing an incentive to return.

• “We miss you” personalized messages: Make these genuine and reference their specific past purchases to show you value their individual interests. “Your last purchase of our organic tea was 3 months ago – here’s what’s new in our collection” shows you track and care about their preferences.

Real Example: Dollar Shave Club’s email sequence shows perfect understanding of their customer’s usage patterns. They send well-timed replenishment reminders based on your chosen plan, but it’s their cross-selling that really shines. Start with their basic razor subscription, and you’ll receive perfectly timed introductions to their shave butter, post-shave cream, and body wash. Each email feels helpful rather than pushy, often including grooming tips and humor that matches their brand voice.

Calculating Your True Customer Value

So how do you actually figure out if those “unprofitable” customers are worth the investment? Let’s break it down in a way that won’t make your head spin.

The easiest place to start is right in your Shopify dashboard. Under Analytics, you’ll find the Customer Cohort Analysis – fancy words for a simple concept. It shows you how much your customers spend over time. For example, customers who first bought from you in January might end up spending twice as much as those who started in March. This insight is gold for understanding the long-term value of your customers.

Here’s an example from a client. Yes, it’s ugly and a little confusing at first but if you want a quick way to determine how valuable your average customer is after their initial purchase, compare the total annual sales to the total first-order sales. As you can see, the difference is significant—and this is just showing 12 months. We know you’ll be riding that recurring order gravy train long after that.

But don’t stop at the basic numbers. Pay attention to patterns. Are customers who start with a specific product more likely to come back? Do holiday shoppers turn into loyal customers, or are they one-and-done? Your first-time purchase data can tell you a lot about future behavior.

Here’s a pro tip: create separate tracking for customers based on their entry point. Did they come from a Facebook ad? A Google search? An influencer promotion? Each channel might produce customers with wildly different lifetime values. Maybe those “expensive” Facebook customers actually spend three times more over a year than customers from other sources.

The beauty of this approach is that it gives you the confidence to spend more on acquisition when you know the true return. If your cohort analysis shows that customers typically spend $300 within six months, suddenly that $50 customer acquisition cost doesn’t look so scary.

Tools That Make Tracking Easy

While Shopify’s built-in analytics are great for basics, there’s other tools on the market you should make use of.

Google Analytics 4 is the best free tool and should be installed on every site. Plus, it integrates with pretty much everything else you’re using. Unfortunately, sometimes there’s gaps in the data which doesn’t always give you the full picture.

Paid tools like Triple Whale, Daasity, and Glew io are popular options if you want a more granular view of your sales data and customer journey. The real magic happens when you connect these tools to your marketing platforms.

Suddenly you can see that while Facebook ads might cost you more upfront, those customers stick around longer than your Google ads customers. That’s the kind of insight that helps you sleep better after spending $50 to acquire a $40 customer.

Supercharge LTV With the Subscription Model

Implementing the subscription model doesn’t mean your entire business has to be subscription based. We know customers love two things: convenience and savings. By offering a subscription option on your most frequently purchased products, you’re giving them both while creating a more sustainable business model. A simple 10% discount on subscription orders can be the difference between a one-time purchase and a loyal, long-term customer.

If your customers are already coming back every few months to reorder their favorite products, why make them go through the whole checkout process again? Why risk them forgetting and going somewhere else? Better yet, why risk them finding a competitor who does offer the convenience of subscriptions? Every manual reorder is an opportunity for your customer to reconsider their purchase decision or, worse, discover your competition.

Start with your most frequently reordered products. Those face moisturizers that customers buy every three months? That coffee that runs out every four weeks? Those are your subscription goldmines. Look at your order history and identify patterns – which products do customers consistently come back for? These are your perfect subscription candidates. Even converting a small percentage of these repeat purchases into subscriptions can significantly impact your bottom line.

Here’s where things get exciting from a business perspective: predictable revenue changes everything. When you know exactly how many moisturizer subscriptions are processing next month, you can better manage inventory, plan marketing budgets, and make smarter business decisions. This predictability also makes your business more valuable – investors and lenders love seeing consistent, recurring revenue streams.

Here’s the psychology behind it – When customers don’t have to make an active decision for each purchase, they often spend more over time. They’re more likely to add complementary products to their subscription or upgrade to premium versions. It’s like streaming services – once you’re subscribed to Netflix, adding HBO Max doesn’t feel like a big decision. The same psychology applies to your products.

The best part? Most e-commerce platforms make this easy now. Shopify has subscription apps like Recharge or Bold that you can integrate in minutes. You can start small, test with a few products, and scale based on what works. These platforms handle all the complex parts – recurring billing, subscription management, and customer communication – so you can focus on growing your business.

The Bottom Line

At first glance, a negative ROAS might make your stomach turn. But successful e-commerce brands know better. The real winners are focused on lifetime value.

Remember, every great customer relationship starts somewhere. Sometimes that means taking a small hit up front to acquire customers who will stick with you for years. Acquire your customers first, then implement your email or SMS campaigns to nurture them. Finally, use the subscription model wherever possible to capture predictable, long-term revenue.

The math is simple: if you can afford to spend more to acquire customers than your competitors, you gain an unfair advantage in the marketplace. You can bid more aggressively, reach better placements, and capture more market share. Luckily, your competitors most likely won’t read this article. So while they’re squeaking by trying to make a profit on the first sale, you’re building a customer base that grows in value over time.

So if you’re in it for the long haul, and you’ve got the systems to drive repeat purchases, stop leaving money on the table and start thinking bigger.

CHEERS!

Greg Morris