LTV:CAC compares customer lifetime value (LTV) to customer acquisition cost (CAC)—the core unit-economics ratio for subscription and repeat-purchase businesses.

How it works

First define LTV: often average revenue per account × gross margin × average customer lifetime (or ÷ churn rate for SaaS). Define CAC as sales and marketing spend divided by new customers in the same period.

LTV:CAC = LTV ÷ CAC

Example: if LTV is $3,000 and CAC is $1,000, the ratio is 3:1. Investors often ask for cohort-based LTV—not company-wide averages that mix old and new customers—and want CAC aligned to the same cohort window.

A ratio below 1:1 means you lose money on each new customer before overhead. Ratios around 3:1 are commonly cited as healthy for SaaS, but the right target depends on payback period, capital cost, and expansion revenue. High LTV:CAC with 24-month payback may still be unattractive.

Pair the ratio with CAC payback months and net dollar retention so investors see both efficiency and durability.

Why it matters

• Founders: Channel-level LTV:CAC tells you where to scale paid spend and where product-led growth is working.
• Investors: The ratio separates companies that buy revenue from those that earn it. Sudden improvement often triggers diligence on whether CAC was under-reported or LTV assumes optimistic churn.

Common mistake

Using revenue-based LTV while citing gross-margin CAC benchmarks, or including expansion revenue in LTV but not in the CAC window that acquired the original customer. Align definitions across numerator and denominator.

Related ideas

See also CAC, CAC payback, gross margin, and net dollar retention.