KPICustomer Success & Service

LTV:CAC Ratio

Ratio of customer lifetime value to acquisition cost; a measure of sales and marketing efficiency

What is LTV:CAC Ratio?

The lifetime value to customer acquisition cost ratio compares what a customer is worth with what it costs to win them. It shows whether growth spending creates value.

A healthy ratio means each customer returns comfortably more than they cost to acquire, while a low ratio means the business is spending too much for the return.

How this KPI is measured

Function
Customer Success & Service
Sub-function
Unit Economics
Industry
All Industries
Type
Lagging
Impact
Financial control
Unit
x
Measurement frequency
Quarterly / Annual
Formula
Customer Lifetime Value / Customer Acquisition Cost

How to calculate it

Divide customer lifetime value by customer acquisition cost.

For example, with lifetime value of 40,000 and acquisition cost of 8,000, the ratio is 5.

Many subscription businesses look for a ratio of around 3 or more, but the right level depends on payback time, growth goals and cash. A very high ratio can also mean the business is under-investing in growth.

Where it is used

  • Judging growth efficiency

    See if acquisition pays.

  • Setting marketing and sales budgets

    Decide how much to invest.

  • Comparing channels and segments

    Choose where to grow.

How to improve it

Tips and common mistakes

  • The ratio depends on the reliability of lifetime value estimates.
  • Read with payback so cash needs are clear.
  • Very high ratios may mean you should invest more in growth.

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