LTV:CAC Ratio

The LTV:CAC ratio compares how much a customer is worth over their lifetime to how much it cost to acquire them. It's the single clearest read on whether your growth engine makes money: if each customer returns far more than they cost to win, you can spend confidently; if the ratio is thin, growth is burning cash.

How to calculate LTV:CAC

If LTV is $2,000 and CAC is $500, the ratio is 4:1. Every dollar spent acquiring a customer returns four dollars over the relationship. Use the same flavor of LTV on both sides of your analysis, revenue LTV and gross-profit LTV give very different ratios, so pick one and be consistent.

What a healthy ratio looks like

• Below 1:1 — you lose money on every customer. Unsustainable outside a deliberate land-grab.
• Around 3:1 — the widely cited benchmark for a healthy subscription business. Enough margin to fund the rest of the company.
• Well above 5:1 — often a sign you're underinvesting in growth, not a trophy. You could likely spend more to acquire faster.

These are rules of thumb, not laws. Early-stage companies with volatile churn should treat the ratio as directional, since a small change in retention swings LTV sharply.

Why it matters

The ratio tells you whether unit economics work, but not how long you wait to find out. Pair it with the CAC payback period: a strong 4:1 ratio is far less comfortable if payback takes two years, because that cash is tied up the whole time. Improving the ratio usually means lifting LTV through retention or ARPA growth rather than simply cutting acquisition spend.