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.
More Customer Success & Service kpi library
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