What is LTV:CAC Ratio?
Also known as: LTV to CAC, Lifetime Value to Customer Acquisition Cost
The ratio of customer lifetime value to customer acquisition cost — the central efficiency metric for subscription businesses.
LTV:CAC = Customer Lifetime Value (Gross Profit) ÷ Customer Acquisition CostThe detailed definition
LTV:CAC is the headline number for SaaS unit economics. The interpretation: for every $1 spent acquiring a customer, how many dollars of lifetime value do they generate? Healthy SaaS sits at 3:1 or better; 1:1 means breakeven, below 1:1 means losing money on acquisition. Above 5:1 sometimes indicates underinvestment in growth — the math could support more acquisition spend without breaking the model. The denominator gotcha: CAC should include all acquisition costs (paid ads, content marketing, sales team, tools), not just paid media. The numerator gotcha: use gross-profit LTV, not revenue LTV — comparing cash cost to gross profit is apples-to-apples; comparing cash cost to revenue flatters the ratio.
Related terms
Frequently asked about LTV:CAC Ratio
›What's a good LTV:CAC ratio?
3:1 is the SaaS-industry consensus for sustainable growth. 1:1 is breakeven; below 1:1 you're losing money. 5:1+ might signal underinvestment in growth — you could likely spend more on acquisition without breaking unit economics. For ecommerce with shorter payback cycles, 1.5:1 to 2:1 can be sustainable.
›Should the calculation use revenue LTV or profit LTV?
Profit LTV, almost always. CAC is paid in cash; LTV in revenue terms ignores COGS and inflates the ratio. Gross-profit LTV gives the honest comparison.
›How often should LTV:CAC be calculated?
Monthly for tactical decisions; quarterly for board reporting. Watch for cohort-level drift — your LTV:CAC at the company level can look healthy while a new acquisition channel is quietly running at 1:1. Cohort-level reporting (per channel, per month of acquisition) catches drift early.
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