LTV

What it means

LTV is the margin a customer brings across the whole relationship. For subscription-like services the simplest calculation is monthly margin divided by the churn rate.

It must be built on margin, not revenue. A customer billing a thousand euros at nine hundred of cost is not worth more than one billing three hundred at a hundred.

In banking, LTV means something else entirely: the ratio of a loan to the value of its collateral, typically for a loan secured on property. In marketing and in this glossary it means customer lifetime value. When LTV comes up in a conversation with a bank or an investor, it is worth clarifying at once which of the two figures is meant.

How it works in practice

Set against acquisition cost, LTV is the key number for marketing decisions. A ratio of three is the usual guide, but how many months acquisition takes to pay back matters more.

There are two ways to raise it: keep the relationship longer or widen the service. In accounting that means taking over payroll, reporting or admin the client currently buys elsewhere.

LTV is best calculated by segment rather than as one average. At an accounting firm, an s. r. o. with employees stays for a different length of time and brings a different margin than a sole trader on flat-rate expenses, and the average of both groups describes neither. This split by segment is the basis of unit economics and shows which clients are worth acquiring.

What to watch out for

In a young company LTV is an estimate, not a fact: two years of customers tells you nothing about five. So decisions lean on the payback period the company has actually measured.

A first-year discount lowers LTV more than it seems: if the price is never adjusted, the customer stays on the lower margin for the whole relationship. It is also overlooked that the work grows when the client adds employees or new activities. Without a regular review as part of pricing, a customer with a good LTV quietly becomes a loss-maker.