LTV (Lifetime Value)
LTV is not an optimistic projection for investor slides. It's the real, historical, verifiable value generated by a customer over the commercial relationship.
“An LTV calculated on gross revenue is a press-release number, not a boardroom number.”
Otto GTM ObservatoryWhat it actually measures
LTV translates the length of the commercial relationship into economic value. It depends on three levers: average revenue per account, margin on that revenue, and expected relationship duration, which in turn depends on churn.
A company that wants to raise LTV without touching pricing has two paths: extend retention through onboarding and customer success, or increase expansion revenue on existing customers. The second is almost always faster to activate.
Anti-patterns
The most common mistake: calculating LTV on gross revenue while ignoring delivery and support costs. On low margins (30-40%), this can inflate real LTV by as much as 60%.
Second mistake: using a company-wide average LTV to justify acquisition spend on low-value segments. The result is a CAC that looks sustainable on paper but erodes margin in reality, segment by segment.
Practical Application
An enterprise customer with €42,000/year ARPA, 74% gross margin, and 9% annual churn generates an LTV of €345,333. Segmenting instead on mid-market (€11,500 ARPA, 68% margin, 21% churn), LTV drops to €37,238: a nearly 9-to-1 ratio that no aggregate average would have revealed.