FA-301b · Module 1

Segmented LTV

3 min read

A single LTV number for the entire customer base is a blended average that describes no actual customer. Enterprise LTV, mid-market LTV, and SMB LTV are different economic units with different retention curves, expansion rates, and cost-to-serve profiles. Optimizing a blended LTV/CAC ratio is like optimizing the average temperature of a building — technically measurable, operationally meaningless. Every LTV decision should be segment-specific.

LTV by Segment (Gross-Margin-Adjusted):
──────────────────────────────────────────────────────
              Enterprise  Mid-Market     SMB
──────────────────────────────────────────────────────
ARPA (Annual):   $185,000    $44,000    $12,000
Gross Margin:       78%        82%        85%
Annual Churn:      4.8%       12.0%      26.0%
──────────────────────────────────────────────────────
Simple LTV:     $3,006,250  $300,667    $39,231

Formula: (ARPA × GM%) / Annual Churn

Enterprise LTV is 76x SMB LTV. But enterprise
CAC is only 13x SMB CAC. The efficiency gap
is enormous — and invisible in blended metrics.

Do This

  • Calculate LTV separately for each segment with segment-specific churn and margin
  • Weight portfolio LTV by the mix of segments you are actually acquiring
  • Recalculate segmented LTV quarterly as retention and expansion data matures

Avoid This

  • Use one blended LTV number for all customers and all decisions
  • Calculate LTV with revenue instead of gross profit — overstates by the COGS gap
  • Assume today's segment mix will persist — acquisition shifts change the blended number