LTV:CAC Ratio

LTV/CAC ratio: return per dollar acquired

The LTV/CAC ratio tells you how many dollars of lifetime value come back for every dollar you spend to win a customer. The formula is short: ratio = LTV / CAC. Say LTV is R$ 3,000 and CAC is R$ 600, and the ratio works out to 5×. One thing trips people up: bake gross margin into LTV first. Use contribution margin rather than topline revenue, or the number flatters you.

Applications

It's a fixture on VC pitches and board decks. Teams use it to decide whether to increase or cut marketing budget, and to find the ICP segments with better unit economics, since one segment can easily run 2× the LTV/CAC of another. Read it alongside CAC payback too. A ratio that looks fine but takes 24 months to recover the cash can still squeeze you.

FAQ

What's a healthy ratio? 3:1 is the classic SaaS benchmark. Under 1 means you lose money on every customer you bring in. Over 5 usually says you're being too cautious with growth and could afford to spend more on acquisition.

Why does gross margin matter? Take a 5× ratio built on revenue-LTV at a 20% margin. On contribution-LTV that's only 1×, which is break-even rather than healthy. Apply the margin before you do anything else.

Ratio vs. payback — which is more important? You need both. The ratio tells you how profitable each customer is, while payback tells you how quickly the cash comes back. A great ratio paired with slow payback can still trigger a cash crunch at an early-stage company.