LTV : CAC Ratio
How many dollars of lifetime profit you get back for each dollar spent on acquisition.
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How it works
LTV:CAC = lifetime gross profit per customer ÷ cost to acquire that customer.
Below 1, you're paying customers to leave with your money. Around 3, the common SaaS rule of thumb, acquisition is comfortably profitable. Far above that isn't automatically good either — a very high ratio can mean you're underinvesting in growth that would pay for itself.
Two classic mistakes: computing LTV on revenue instead of gross profit (inflates the ratio), and forgetting that LTV arrives over years while CAC leaves your bank today. A 3:1 ratio with a 24-month payback can still kill you — always read this next to the payback period.
Worked example
A customer is worth $1,200 in lifetime gross profit and costs $400 to acquire: LTV:CAC = 3.0×, leaving $800 of net value per customer, with acquisition consuming 33% of lifetime profit. Healthy — as long as that $1,200 doesn't take four years to show up.