LTV (Lifetime Value): use customer value to plan your clients' campaigns

When you plan campaigns for a client, the underlying question is always the same: how much can be spent to win each buyer? LTV (Lifetime Value) answers that: it estimates the economic value a customer generates over their entire relationship with a company. It is the metric that truly decides how much your client can invest in acquisition, retention, and support, because it sets the ceiling on the cost each buyer can bear before they stop being profitable.

For a creative or marketing team, LTV is not financial theory. It is the lever that separates "the CAC seems high to me" from "the CAC is high and it is not profitable", two completely different diagnoses.

How to calculate it

The basic formula:

LTV = average revenue per customer × purchase frequency × average relationship duration

For recurring subscriptions, it is usually simplified to:

LTV = monthly ARPU × average months of retention

Where ARPU is the average revenue per user. More sophisticated: adjust for gross margin instead of gross revenue, to reflect real economic value, not just billings.

The LTV/CAC rule

The most widely used derived metric is the LTV/CAC ratio:

• LTV/CAC < 1 → you are losing money on every customer. Unsustainable.
• LTV/CAC between 1 and 3 → marginally profitable. Hard to reinvest in growth.
• LTV/CAC between 3 and 5 → healthy zone. Room to reinvest in acquisition.
• LTV/CAC > 5 → under-investing in growth. You can probably scale faster.

The industry typically cites 3 as the minimum target and 5 as the optimal ratio for SaaS, although it varies by sector.

Why reading by segment matters

Aggregate LTV hides more than it reveals. The useful reading appears when you compare segments:

• Customer type. SMBs tend to have lower LTV but lower CAC. Enterprise, the other way around.
• Acquisition channel. Organic customers tend to have higher LTV than those from paid social.
• Entry plan. Customers who enter via a paid trial tend to retain better than those from freemium.
• Time cohort. The LTV of customers acquired 2 years ago may not resemble that of current ones.

Optimizing for aggregate LTV can lead to decisions that improve the average but worsen critical segments.

Common mistakes

• Using revenue instead of margin. Inflating LTV with gross revenue hides unprofitable customers.
• Not discounting for churn. Assuming perfect retention turns the calculation into fiction.
• Averaging heterogeneous segments. An average LTV of €5,000 with 80% of customers at €1,000 and 5% at €50,000 is not actionable.
• Calculating it once and forgetting it. LTV changes. Review it every quarter.
• Confusing historical LTV with projected LTV. New customers may have a different profile from past ones.

LTV in creative operations

For an agency or in-house team, LTV defines how much it can cost to produce content to acquire each type of customer. If a segment's LTV allows spending €200/customer on acquisition, it makes no sense to invest in €5,000-per-ad pieces. If the LTV is €50,000, it does.

Connecting LTV with creative production turns the decision of "how much to invest in a campaign" into something measurable, not aesthetic. On how to measure and connect marketing metrics with creative production, read creative KPIs.

At Polimake, campaigns are planned in Studio with a budget per segment, the creative assets live in Studio, and the archived assets in Media, to be reused and lower the marginal cost of each new campaign.

Related concepts

• CAC: customer acquisition cost
• ROI: return on investment
• Conversion funnel
• Up selling
• Creative KPIs

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This piece is part of the Polimake glossary and the cluster on creative operations. If you manage growth or marketing at an agency or in-house team, read also creative KPIs.