LTV:CAC Ratio

What is LTV:CAC Ratio?

LTV:CAC ratio compares how much a customer is worth over their lifetime to how much it costs to acquire them. It's the single most important unit economics metric for subscription businesses.

A ratio of 3:1 means every dollar spent on acquisition generates three dollars in customer value. This is the minimum benchmark for a sustainable SaaS business.

What's a Good LTV:CAC Ratio?

Below 1:1 means you're losing money on every customer. Between 1:1 and 3:1 suggests unsustainable economics. 3:1 to 5:1 is the sweet spot for most companies. Above 5:1 might mean you're underinvesting in growth.

The ideal ratio depends on your stage. Early startups might accept lower ratios to gain market share. Mature companies should optimize toward 3:1 or higher.

Improving LTV:CAC

Two levers: increase LTV or decrease CAC. Reduce churn, raise prices, drive expansion revenue to boost LTV. Improve conversion rates, optimize channels, reduce sales cycle to lower CAC.

Your metrics:

• ARPU: $200/month
• Gross margin: 80%
• Monthly churn: 2%
• CAC: $2,000

LTV = ($200 × 0.80) ÷ 0.02 = $8,000

LTV:CAC = $8,000 ÷ $2,000 = 4:1

Healthy ratio indicating efficient growth. Each acquisition dollar returns four dollars in customer value.