Complete Definition
The LTV:CAC ratio is one of the most important metrics for evaluating the health and sustainability of a business model. It compares how much value you get from a customer (LTV) versus how much you spend to acquire them (CAC).
This ratio tells you whether your business can profitably scale. A healthy ratio means you can invest more in growth with confidence that each customer will generate positive returns.
How to Calculate
LTV:CAC Ratio = Customer Lifetime Value ÷ Customer Acquisition Cost
Interpreting the Ratio
**< 1:1 (Danger Zone)** You're spending more to acquire customers than they're worth. This is unsustainable and requires immediate attention.
**1:1 to 3:1 (Caution)** You're breaking even or slightly profitable. May be acceptable for early-stage startups gaining market share, but needs improvement.
**3:1 (Ideal)** The gold standard for most businesses. You earn $3 for every $1 spent on acquisition, leaving room for other costs and profit.
**> 3:1 (Efficient)** Highly efficient, but might indicate under-investment in growth. Consider accelerating customer acquisition.
**5:1+ (Consider Scaling Faster)** You may be leaving growth on the table. Consider increasing marketing spend to capture more market share.
By Industry
- SaaS: 3:1 to 5:1 typical - E-commerce: 2:1 to 4:1 typical - Marketplaces: 3:1 to 6:1 typical