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LTV/CAC Ratio

Ratio of customer value vs acquisition cost.

The LTV/CAC ratio compares the total value generated by a customer (LTV) to their acquisition cost (CAC). It's the ultimate indicator of your acquisition model profitability. A high ratio means your customers are profitable, a low ratio indicates you're losing money on each acquisition.

Formula

LTV/CAC Ratio = LTV / CAC

The ratio is simply calculated by dividing LTV by CAC. A 3:1 ratio means each customer generates 3× their acquisition cost.

Concrete Example

A SaaS with $3,000 LTV and $600 CAC.

LTV/CAC = $3,000 / $600 = 5:1

Each dollar spent on acquisition generates $5 in value.

SaaS Benchmarks

< 1:1Loss - You're losing money
1:1 - 3:1Risky - Difficult to scale
3:1 - 5:1Healthy - Ready to accelerate
> 5:1Excellent - Invest more

Tips

  • A 3:1 ratio is minimum for healthy SaaS
  • VCs look for 5:1 minimum
  • Improve ratio by reducing churn or CAC
  • Calculate payback period as complement

Common Mistakes

  • Ignoring payback period despite good ratio
  • Comparing ratios from different markets (B2B vs B2C)
  • Not segmenting by acquisition channel

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Related Terms

LTVCACPAYBACK PERIODUNIT ECONOMICS

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