The LTV:CAC Ratio measures the relationship between the lifetime value (LTV) of a customer and the cost to acquire that customer (CAC). It indicates how efficiently your business turns acquisition costs into long-term value.
To calculate the LTV:CAC Ratio, divide the average customer lifetime value by the customer acquisition cost. This provides a quick view of return on acquisition investment.
If the average customer lifetime value is $900 and your customer acquisition cost is $300, the LTV:CAC Ratio is 900 / 300 = 3:1.
A good LTV:CAC Ratio is typically 3:1 or higher. This suggests that your customers generate three times more revenue than they cost to acquire – an indicator of a scalable business.
A ratio of 1:1 or lower means your business is spending as much (or more) to acquire customers as it’s earning from them. This can signal poor ROI or unsustainable growth.
Encourage repeat purchases, upsells, and longer retention to boost customer lifetime value.
Optimize ad targeting, use automation, and focus on organic channels to reduce CAC.
Identify and prioritize customers who bring the most long-term value for targeted marketing.
