What is LTV:CAC Ratio?

LTV to CAC Ratio

DEFINITION

LTV:CAC Ratio compares Lifetime Value to Customer Acquisition Cost. A 3:1 ratio is healthy — you earn $3 for every $1 spent acquiring customers.

FORMULA

LTV:CAC = Lifetime Value ÷ Customer Acquisition Cost

BENCHMARKS

Under 1:1 unprofitable · 1-3:1 losing money or breakeven · 3-5:1 healthy · 5+:1 under-investing in growth

DEFINITION

Ltv Cac Ratio: LTV:CAC Ratio compares Lifetime Value to Customer Acquisition Cost. A 3:1 ratio is healthy — you earn $3 for every $1 spent acquiring customers.

Why LTV:CAC Ratio matters

The single best health metric for any subscription or repeat-purchase business. Below 3:1, you cannot grow profitably. Above 5:1, you should spend MORE on acquisition — you are leaving growth on the table.

Worked example

Plug a real number into the formula to see LTV:CAC Ratio in action:

// Formula

LTV:CAC = Lifetime Value ÷ Customer Acquisition Cost

// Example calculation

$300 LTV ÷ $80 CAC = 3.75:1

Numbers are illustrative. Try our Customer LTV Calculator for your real numbers.

Common mistakes with LTV:CAC Ratio

1
Looking at single-channel ROAS in isolation instead of blended MER. Last-click attribution overweights bottom-funnel channels and starves top-of-funnel.
2
Setting a uniform target across products with different margins. A 2× ROAS is profitable on 80% margin and unprofitable on 20%.
3
Optimizing CAC without measuring LTV. Cheap customers with bad retention destroy unit economics.

How to improve LTV:CAC Ratio

Run incrementality tests every quarter to validate which channels actually drive new revenue vs steal credit.
Build a unit economics dashboard separating CAC, LTV, contribution margin, and payback by channel and cohort.
Establish a contribution margin floor for each channel — pause spend when margin drops below threshold for 14 days.