LTV to CAC ratio
Also known as: LTV:CAC, LTV/CAC, CLV to CAC ratio, lifetime value to acquisition cost
The LTV to CAC ratio is customer lifetime value divided by customer acquisition cost, showing how many dollars of margin each dollar spent on winning a customer returns.
LTV:CAC = customer lifetime value / customer acquisition costThe ratio answers whether acquiring customers creates value or burns it. Customer acquisition cost alone says what a customer costs. LTV alone says what a customer is worth. Only the ratio says whether the trade makes sense, and it works only when both sides use the same definitions.
Example
A B2B SaaS company has a margin-based LTV of $4,200. Its fully loaded CAC is $1,400.
LTV:CAC = $4,200 / $1,400 = 3.0.
Paid search alone has a CAC of $2,100, giving 2.0. Referrals cost $600, giving 7.0. The blended 3.0 hides two very different channels. The figures are illustrative.
How to use it
Calculate the ratio per channel and per segment, then decide where to move budget. A ratio below 1 means each new customer destroys value. A very high ratio can mean the company is underinvesting and growing slower than it could.
Investors in subscription businesses often quote a target ratio as a rule of thumb. Treat any such number as a starting point for a conversation, not a law: the right level depends on margin, cash position and how reliable the LTV estimate is.
Always read it next to the CAC payback period. A ratio of 4 with a 30-month payback can still run a young company out of cash.
Common mistakes
- Using revenue-based LTV against fully loaded CAC, or margin-based LTV against ads-only CAC.
- Projecting LTV from a few months of data, so the ratio rests on a guess.
- Reporting one blended ratio and missing a channel that sits below 1.
- Celebrating a rising ratio that came from cutting acquisition spend, not from better customers.