The Fatal Flaw in Managing Subscription & High LTV Business

by Tom Bruce, a LinkedIn Post Series

 

Running a subscription or high LTV business without a clear revenue model is like sailing without a rudder—no matter how hard you try, you’re bound to lose direction. If you’re not building a sustainable revenue model to lead your strategy, you’re not running with a plan —you’re just hoping for success.

 

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The Right and Wrong Way to Manage a Subscription or High LTV Business 

Many subscription and high LTV businesses fall into the trap of reacting to short-term results: “Sales are down, let’s increase the media budget,” or “ROAS is low, let’s cut ad spend.” This is a major mistake.

 

Why?

A high LTV business thrives on customers acquired in the past. In this example, in year 8, 37% of $4.1M in sales comes from customers acquired that year—$2.6M is already locked in from previous cohorts.

 

Future sales are determined by past customers

If you want to grow 30% in year 9, you need $2.3M from new customers to hit the $5.3M goal. The rest, $3M, will come from previous customers. With a cohort-based model, you can confidently plan to re-engage existing customers while acquiring new ones. 

 

Without a clear revenue model, it’s guesswork.

 

Without understanding revenue by cohort, marketing teams can only guess how much to invest in acquisition versus re-engagement. Throwing more money into ads without this clarity is a strategy doomed to fail. The cost to reengage customers is different than the cost to acquire them, this needs to be part of your plan. 

In my next two posts, I’ll cover:

1. The impact of 3 down years on cohort-based revenue.
2. How to implement a revenue model that drives sustainable growth

 

 

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The Right and Wrong Way to Manage a Subscription or High LTV Business 

Cutting customer acquisition when the ROI looks low today can cost you millions tomorrow. Here’s how a short-sighted decision set this brand back by $700K every year for three years.

 

In this example, a brand acquired 10k customers per year until management decided to cut back on customer acquisition spending at the end of Year 2. Why? Because the ROI looked underwhelming when comparing current revenue to current spend. But they missed a critical point: they weren’t factoring in the long-term value of those acquired customers.

The decision to reduce investment resulted in reducing new customers from 10k to 4k per year and cost the business nearly $700K in lost sales every year going forward, as shown in the chart below.

This is a perfect example of how a short-sighted approach to acquisition can destroy long-term growth in a high LTV or subscription business. It happens more often than you think.  The strategic benefit of a high LTV business is squandered.

In my next post, I’ll show you how to avoid this mistake and build a strategy that leverages the lifetime value of your customers for sustained growth.

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Let’s dive into the practical steps to implement a cohort-based revenue model for your business.

 

Here’s how you can set up a model that forecasts future sales, guides your acquisition strategy, and aligns your marketing investment with sustainable growth:

1. Obtain Cohort Sales Data – Tools like Recharge or Lifetimely (feel free to share any others you use) provide this data in a clean, usable format.
2. Determine Reporting Frequency – Choose a timeframe that suits your needs: monthly, quarterly, or annual.
3. Calculate Customer Repurchase Rates – Understand your customers’ average spend over time. Be cautious of anomalies (e.g., COVID-19 spikes) when choosing your analysis period.
4. Apply Cohort-Based Revenue Projections – Multiply customer acquisition numbers by the average spend across future periods to project sales for each cohort.
5. Align With Your P&L – Ensure your model aligns with your Profit & Loss statement. If the numbers don’t match historically, your model isn’t ready for prime time.
6. Model Future Acquisition Scenarios – Use your cohort model to project how different levels of customer acquisition will impact future revenue.
7. Annual Model Refresh – Review and adjust your model annually to ensure it reflects current purchasing behaviors. Compare it with your P&L.
8. Educate Key Decision-Makers – Ensure leadership understands the model, why it’s crucial for marketing investment, and how short-term thinking on ROAS can harm long-term business value.
9. Involve the Right Stakeholders – This isn’t an entry-level task. You’ll need someone with a strong grasp of both marketing and finance to maintain the model and run scenarios.

At our agency, we implement this process collaboratively for our high LTV and subscription ecommerce clients. Does your agency provide this level of strategic support?  

In summary, when you build a data-driven revenue model, you gain control over your business’s future. You stop chasing short-term fixes and start making strategic investments that will pay off over time.

 

 Follow Tom’s LinkedIn profile to stay up to date. 

Contact us today at sales@conversionpath.com.

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