LTV:CAC Ratio

The LTV:CAC ratio compares what a customer is worth over their lifetime to what it cost to acquire them. If each customer brings in much more than they cost, you can spend more on growth. If the ratio is low, growth is losing money.

How to calculate LTV:CAC

If LTV is $2,000 and CAC is $500, the ratio is 4:1. Each dollar spent winning a customer returns four dollars.

Revenue LTV and gross-profit LTV give very different ratios. Pick one and use it every time.

What a healthy ratio looks like

• Below 1:1, you lose money on every customer.
• Around 3:1 is the common benchmark for a healthy subscription business.
• Well above 5:1 often means you could spend more on acquisition and grow faster.

These are rules of thumb. If your churn is still unstable, treat the ratio as a rough guide, since small changes in retention move LTV a lot.

Pair it with payback period

The ratio says whether a customer pays off, not when. Read it with the CAC payback period. A 4:1 ratio is harder to live with if payback takes two years, because your cash is tied up that whole time. You usually improve the ratio by raising LTV through better retention or higher ARPA, more than by cutting acquisition spend.