LTV:CAC Ratio
MetricThe LTV:CAC ratio compares the lifetime gross value of a customer to the cost of acquiring them, indicating long-term business viability.
What is LTV:CAC, in plain English?
LTV:CAC answers: "Are my customers worth significantly more over their lifetime than what it cost me to bring them through the door?" A ratio of 3:1 is standard — meaning for every $1 spent to get a customer, you make $3 in gross value over time.
How do you calculate LTV:CAC?
LTV:CAC = Customer Lifetime Value (LTV) ÷ Customer Acquisition Cost (CAC)
LTV:CAC example
A subscription software customer generates $900 in total margin over their lifetime, and costs $300 to acquire. LTV:CAC = $900 ÷ $300 = 3:1.
Common LTV:CAC mistakes
The ratio completely hides the timeline of cash flow. A 5:1 ratio that takes 4 years to recover can bankrupt a company due to cash shortages, whereas a 3:1 ratio that recovers in 2 months provides rapid reinvestment capital. Always pair LTV:CAC with CAC Payback Period.
What is a good LTV:CAC?
The widely quoted rule of thumb is 3:1 — a customer generates three times their acquisition cost in lifetime gross profit. Treat it as a starting point rather than a law: a ratio far above 5:1 can mean you are under-investing in growth, and anything near 1:1 loses money once overhead is counted. Always read it next to the payback period.
LTV:CAC FAQs
What is a good LTV:CAC ratio?
3:1 is the common benchmark, with LTV measured as gross profit — not revenue — per customer. Below 1:1 you lose money on every customer; well above 5:1 you may be leaving growth on the table. The right target also depends on how quickly the CAC is paid back.
Should LTV be based on revenue or gross profit?
Gross profit. A customer who spends $1,000 on products with a 30% margin contributes $300, and only that $300 can repay acquisition cost. Using revenue inflates the ratio by the inverse of your margin.
Why is LTV:CAC misleading for young brands?
LTV is a forecast of future purchases, and early cohorts have too little history to support it, so projections lean optimistic. Until cohorts have a year or more of data, rely on observed cohort payback curves rather than a projected lifetime value.
Last reviewed October 3, 2026.