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What is LTV:CAC Ratio?

The LTV:CAC Ratio measures the relationship between Average Lifetime Value (LTV) and Customer Acquisition Cost (CAC).

How is LTV:CAC Ratio used?

This metric is mainly used to assess customer profitability. It reflects the balance between the value a customer brings over their lifecycle and the investment required to acquire them. The ratio is useful for determining when to scale customer acquisition spending, identifying the most profitable customer segments, and highlighting areas where acquisition costs should be optimised.

How to calculate LTV:CAC Ratio


To calculate the LTV:CAC Ratio, divide the Average Lifetime Value (LTV) of your customers by the Customer Acquisition Cost (CAC).

Best Practices

Aim for a healthy balance; too high a ratio might suggest underinvestment in customer acquisition, while too low indicates inefficiency. Be mindful of the time value of money: a higher CAC might be justified if the LTV is realised up front.

Common Misconceptions

A common misunderstanding is that a higher LTV:CAC ratio is always better. While a high ratio can indicate efficient use of acquisition resources, a very high ratio can suggest underinvestment in growth.

LTV helps in identifying customer segments that are likely to spend more over a longer period, thus enabling more targeted and profitable marketing strategies

Avinash Kaushik
Chief Strategy Officer, Croud

"Ideally you want the lifetime value to be three times the cost of what it took to acquire."

Rav Daliwal
VC, Slack


What are the main drivers of LTV:CAC Ratio?
  • Average Lifetime Value (LTV)
  • Customer Acquisition Cost (CAC)
How should I break down LTV:CAC Ratio?
  • Industry vertical
  • Geography
  • Company size
  • Acquisition channel
  • Product

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