LTV:CAC Ratio#
The ratio of customer lifetime value to acquisition cost — a core unit-economics health metric.
Important
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What it is#
The LTV:CAC ratio compares the lifetime value of a customer to the cost of acquiring them. It answers the core unit-economics question: for every $1 spent acquiring a customer, how many dollars of lifetime value come back? It tells you whether growth is profitable and scalable.
Formula#
By convention the numerator is Net (Contribution) LTV — revenue alone overstates the case — and the denominator can be Blended, Paid, or Fully-Loaded CAC depending on what question you are asking.
Worked example#
Chaining the standard example: ARPU $50/month and 5% churn give a 20-month lifetime, so Gross LTV \(= 50 \times 20 = 1{,}000\); at 70% gross margin, Net LTV \(= 700\); with blended CAC $200,
Every $1 of acquisition spend returns $3.50 in profit contribution.
How to read it#
< 1 — losing money on every customer; unsustainable.
1–2 — barely breaking even; not yet scalable.
3–4 — healthy, efficient growth (the classic 3:1 benchmark).
> 5 — strong, but may signal under-investment in growth (you could afford to spend more to acquire).
Why it matters#
It is the headline KPI for SaaS, subscription and D2C businesses and a key lens for investors judging scalability. It is best read alongside the payback period — a great ratio still hurts cash flow if CAC takes too long to recover.
Theme: Business & Growth Analytics · All terminology
Hint
Mind map — connected ideas
LTV (Customer Lifetime Value) · CAC (Customer Acquisition Cost) · Net LTV (sometimes called Contribution LTV) · Gross LTV (Customer Lifetime Value) · Blended CAC (Customer Acquisition Cost)
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More in Business & Growth Analytics
Blended CAC (Customer Acquisition Cost) · CAC (Customer Acquisition Cost) · Cannibalization · Channel-Specific CAC (Customer Acquisition Cost) · Churn · Cohort · Cohort-Based LTV (Simple Version) · Conversion Rate (CR) · Cost-Per-Click (CPC) Models · Cross-Selling · CTR (Click-Through Rate) · Customer Lifetime · Customer Segmentation · D2C (Direct-to-Consumer)
See also
Source article Adapted (context, re-expressed) in our own words from: LTV:CAC Ratio (insightful-data-lab.com).