The ratio of a customer’s lifetime value to the cost of acquiring them.
LTV:CAC compares Customer Lifetime Value (the total profit you expect from a customer over the relationship) with Customer Acquisition Cost (the fully loaded cost to win them). It is the core unit-economics ratio that tells you whether growth is sustainable or you are buying customers at a loss.
A widely cited healthy benchmark for subscription and SaaS businesses is roughly 3:1, meaning a customer is worth about three times what it costs to acquire them. Much lower and growth is unprofitable; much higher can mean you are under-investing in acquisition and leaving growth on the table.
LTV:CAC reframes marketing from a cost centre to an investment decision. It sets how much you can afford to spend to acquire a customer and, combined with the payback period, whether you can scale spend without running out of cash.
Using revenue instead of gross-profit LTV (which flatters the ratio), ignoring churn assumptions baked into the LTV, and leaving costs out of CAC such as salaries, tools and agency fees. Also watch the payback period: a strong ratio with a two-year payback can still strangle cash flow.
Common questions
Straight answers on how this fits your marketing and build.
Around 3:1 is a common benchmark for subscription businesses, but it varies by model and margin. Below roughly 1:1 you lose money on each customer; very high ratios can mean you are underspending on growth.
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