1. Data Collection

1. Ask the user to define their customer segments—by product tier, industry, company size, acquisition channel, or behavior.
   • Example: "How do you segment customers—subscription tier, industry vertical, company size, how they found you, or usage level?"
2. Ask the user for revenue data per segment—average order value, purchase frequency, retention/churn rate, typical customer tenure.
   • Example: "For each segment: What's average purchase value, how often do they buy, what % churn annually, and average customer lifespan?"
3. Ask the user about gross margins—what % of revenue is profit after direct costs (COGS, fulfillment, support).
   • Example: "What's your gross margin—percentage of revenue that's profit after direct costs of delivering the product/service?"
4. Ask the user about current acquisition costs by segment—how much does it cost to acquire a customer from each segment?
   • Example: "What does it cost to acquire customers in each segment—total marketing/sales spend divided by customers acquired?"

2. LTV Calculation Framework

Simple LTV Formula: LTV = (Average Purchase Value) × (Purchase Frequency per Year) × (Customer Lifespan in Years) × (Gross Margin %)

SaaS/Subscription LTV: LTV = (Monthly Recurring Revenue per Customer) × (Gross Margin %) ÷ (Monthly Churn Rate)

Example:

• MRR: $100/month
• Gross Margin: 80%
• Monthly Churn: 5%
• LTV = $100 × 0.80 ÷ 0.05 = $1,600

E-commerce/Repeat Purchase LTV: LTV = (Average Order Value) × (Orders per Year) × (Customer Lifespan) × (Gross Margin %)

Example:

• AOV: $75
• Orders/year: 4
• Lifespan: 3 years
• Gross Margin: 40%
• LTV = $75 × 4 × 3 × 0.40 = $360

Segmented LTV Calculation: Calculate LTV separately for each customer segment:

| Segment | AOV/MRR | Frequency | Lifespan | Margin | LTV | Current CAC | LTV:CAC Ratio | | ------- | ------- | --------- | -------- | ------ | --- | ----------- | ------------- |

3. Acquisition Economics Analysis

LTV:CAC Ratio Guidelines:

• < 1:1: Losing money on every customer (unsustainable)
• 1:1 to 2:1: Marginally profitable (risky, little buffer)
• 3:1: Healthy target for most businesses
• 5:1+: Excellent, likely underinvesting in growth
• 10:1+: May be leaving growth on the table, consider increasing spend

Payback Period: How long to recover acquisition cost?

Payback Period = CAC ÷ (Monthly Revenue per Customer × Gross Margin %)

Target: <12 months for most businesses, <6 months ideal

Allowable CAC by Segment: Based on target LTV:CAC ratio of 3:1:

Allowable CAC = LTV ÷ 3

Example:

• If Segment A has LTV of $1,500
• Allowable CAC = $1,500 ÷ 3 = $500
• Current CAC = $600 → Overspending, unprofitable
• Need to reduce CAC or increase LTV

4. Optimization Strategies

For Low-LTV Segments:

• Increase prices: Test 10-20% price increase
• Reduce churn: Improve onboarding, customer success, product value
• Increase purchase frequency: Upsells, cross-sells, reminders
• Extend lifespan: Loyalty programs, annual contracts, switching costs

For High-LTV Segments:

• Acquire more: Increase marketing spend on these channels/segments
• Improve CAC: Optimize campaigns to reduce cost while scaling
• Find lookalikes: Target similar profiles to high-LTV customers
• Prioritize retention: VIP treatment, dedicated support, exclusive access

For Unprofitable Segments (LTV < CAC):

• Option 1: Reduce CAC through better targeting or channel optimization
• Option 2: Increase LTV through pricing, upsells, or retention improvements
• Option 3: Stop acquiring if unfixable, focus budget on profitable segments

Budget Reallocation: Shift spend from low-LTV to high-LTV segments:

• Calculate % of budget currently on each segment
• Calculate optimal allocation based on LTV:CAC ratios
• Implement gradual shift over 90 days
• Monitor results and adjust

5. Predictive LTV Modeling

Early Indicators of High-LTV Customers: Identify behaviors that predict high lifetime value:

• Activation milestones hit within first 30 days
• Feature adoption patterns
• Engagement frequency
• Team/seat expansion early
• Payment method (annual vs. monthly)
• Referral participation

Cohort Analysis: Track LTV by acquisition cohort (month/quarter):

• Are newer cohorts more or less valuable?
• Does LTV improve or degrade over time?
• Which acquisition channels produce highest-LTV cohorts?

LTV Expansion Strategies:

• Onboarding optimization: Higher activation = higher LTV
• Upsell timing: When are customers ready for upgrade?
• Cross-sell opportunities: Complementary products at specific lifecycle stages
• Annual plan migration: Move monthly to annual for lower churn and better economics
• Usage-based expansion: Grow with customer (seats, volume, features)

6. Segment-Specific Marketing Strategy

Based on LTV analysis, create targeted approaches:

Segment A: High LTV, Low CAC (Golden Segment):

• Strategy: Scale aggressively
• Budget: Allocate 40-50% of spend
• Channels: Double down on what's working
• Messaging: Lean into what resonates with this segment

Segment B: High LTV, High CAC (Optimize Efficiency):

• Strategy: Improve acquisition efficiency
• Budget: Maintain but optimize
• Channels: Test lower-cost alternatives
• Messaging: Improve conversion to reduce CAC

Segment C: Low LTV, Low CAC (Volume Play):

• Strategy: Acceptable if volume scales
• Budget: Limited allocation
• Channels: Automated, low-touch
• Messaging: Self-service, product-led

Segment D: Low LTV, High CAC (Avoid):

• Strategy: Minimize or eliminate
• Budget: Redirect elsewhere
• Channels: Turn off unprofitable campaigns
• Messaging: N/A - don't target

7. Deliverables

LTV Analysis Report:

• Segment-by-segment LTV calculations
• LTV:CAC ratios with health assessment
• Payback periods per segment
• Allowable CAC guidelines

Strategic Recommendations:

• Which segments to scale
• Which to optimize
• Which to de-prioritize
• Budget reallocation plan

Optimization Roadmap:

• LTV improvement tactics per segment
• CAC reduction strategies
• Testing priorities
• Success metrics to track

Monitoring Dashboard:

• Real-time LTV tracking by segment
• Cohort LTV trends over time
• LTV:CAC ratio monitoring
• Early indicators of LTV potential

Present comprehensive LTV analysis with clear segment profitability assessment, strategic budget allocation recommendations, and actionable optimization plan.