LTV to CAC Ratio(LTV:CAC)
The ratio of customer lifetime value to customer acquisition cost.
The LTV:CAC ratio measures the return on your customer acquisition spend. A ratio above 3:1 generally indicates a healthy, scalable business. Below 1:1 means you're losing money on every customer. Between 1:1 and 3:1 means you're potentially over- or under-investing in growth.
Venture-funded SaaS businesses often deliberately operate at lower LTV:CAC during land-grab phases — burning cash to capture market share with the expectation that ratios improve as they hit scale. Bootstrapped businesses generally need 3:1 or higher to fund growth from cash flow.
LTV:CAC = Lifetime Value / Customer Acquisition CostIf LTV is $4,000 and CAC is $1,000, LTV:CAC = 4:1.
Frequently asked questions
What's the magic LTV:CAC number?
There isn't one — it depends on your gross margin, time-to-LTV, and capital position. A 5:1 ratio with 10-year payback is worse than a 2:1 ratio with 3-month payback for most businesses.
Related terms
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