Glossary / LTV to CAC Ratio
LTV to CAC Ratio
The LTV to CAC ratio compares what a customer is worth to what they cost to win. Divide customer lifetime value by customer acquisition cost.
Work out yours
Ratio = LTV ÷ CAC
3.0x
Healthy. This is a channel worth scaling.
Why it matters
This single ratio decides whether growth spending is an investment or a leak. Below two to one you are one cost increase away from trouble. Above five to one you are usually underspending, because a channel that returns five dollars for every one is not something to budget, it is something to feed.
Where people get it wrong
A great ratio built on a tiny sample is not a great ratio. Ten customers is a story, not a pattern. Wait until you have a few months before you scale on the strength of it.
If this number is not where you want it
When the ratio already works, the constraint is not strategy, it is that nobody is running the channel consistently. That is what a managed retainer is actually for.
Digital Marketing, Growth, $500 to $1,500 a month
See what it would take, free →About Digital Marketing, GrowthRelated terms
- Customer Acquisition Cost (CAC)Customer acquisition cost is what you spend, on average, to win one new customer.
- Customer Lifetime Value (LTV)Customer lifetime value is everything one customer pays you across the whole relationship, not just the first sale.
- Payback PeriodPayback period is how long it takes a new customer to pay back what they cost to acquire.
- Marketing BudgetA marketing budget is the amount you commit to winning customers over a period, usually set as a share of revenue.
Common questions
+ What is a good LTV to CAC ratio?
Three to one is the common benchmark. Below two is thin. Above five usually means you could profitably spend more than you are.
Part of the small business glossary. All six free calculators are here.