---
title: "What Is LTV:CAC?"
term: "LTV:CAC"
description: "LTV:CAC is the ratio of customer lifetime value to customer acquisition cost, showing how much gross profit a customer generates relative to what you spent to win them."
date: 2026-07-25T00:00:00.000Z
updated: 2026-07-25T00:00:00.000Z
topics: ["venture-capital"]
source: https://venturecapitaltracker.com/glossary/ltv-cac
---

# What Is LTV:CAC?

> LTV:CAC is the ratio of customer lifetime value to customer acquisition cost, showing how much gross profit a customer generates relative to what you spent to win them.

**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](/glossary/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](/glossary/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](/glossary/cac), [CAC payback](/glossary/cac-payback), gross margin, and [net dollar retention](/glossary/net-dollar-retention).

## FAQ

### What is LTV:CAC in simple terms?

Divide what a typical customer is worth over their relationship with you (LTV) by what you spent to acquire them (CAC). A ratio of 3:1 means each dollar of acquisition spend returns three dollars of lifetime value before other costs.

### Why does LTV:CAC matter?

Investors use it to judge whether growth is profitable at the unit level. Founders use it to decide which channels to scale—high LTV:CAC channels deserve more budget; low ratios mean fix retention or CAC before pouring in capital.


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Source: https://venturecapitaltracker.com/glossary/ltv-cac