LTV:CAC Ratio
The ratio of customer lifetime value to customer acquisition cost, indicating the return on acquisition investment.
Why It Matters
LTV:CAC ratio is the single most important metric for understanding whether your growth model is economically viable.
How It Works
Divide LTV by CAC. A ratio of 3:1 means you earn $3 for every $1 spent on acquisition. Below 1:1 means you're losing money on every customer; above 5:1 may mean you're underinvesting in growth.
Real-World Example
A company with $3,000 LTV and $800 CAC has a 3.75:1 ratio, indicating healthy unit economics.
Common Mistakes
Celebrating high ratios without checking if you are underinvesting
Not recalculating as pricing or churn changes over time
Related Terms
The total revenue a business can expect from a single customer account throughout their entire relationship.
The total cost of acquiring a new customer, including all marketing and sales expenses.
The percentage of customers who stop using your product or cancel their subscription in a given period.
LTV:CAC Ratio FAQs
What is a good LTV:CAC ratio?
A 3:1 ratio is the benchmark for healthy SaaS businesses; below 1:1 is unsustainable, above 5:1 suggests room to invest more in growth.
How do I improve my LTV:CAC ratio?
Either increase LTV through retention and upselling, or decrease CAC through channel optimization and conversion rate improvements.
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