LTV to CAC ratio

LTV:CAC compares what a customer is expected to be worth over time with what it cost to acquire them. The result depends on how LTV is defined.

Stock photos and example labels, not customers.

Definition

LTV:CAC compares what a customer is expected to be worth over time with what it cost to acquire them. The result depends on how LTV is defined.

FormulaLTV:CAC = customer lifetime value / customer acquisition cost

Example with made-up numbers: A customer is expected to bring 90 in contribution margin over 12 months and cost 30 to acquire. LTV:CAC = 90 / 30 = 3.0.

How to use it

Lifetime value can be revenue or contribution margin, and it can be measured over six months or three years. The same store gives very different ratios depending on those choices, so write the definition next to the ratio.

Use margin and a fixed window for a steadier number. A ratio built on revenue can look healthy while the business loses money on each order.