LTV/CAC Ratio

LTV/CAC Ratio is the ratio of a customer’s lifetime value (the amount of revenue over their entire lifetime) to the cost of attracting them (all marketing and sales expenses per one new customer). This is the main metric of a unit economy, by which investors and owners evaluate the scalability of a business.

Benchmarks: LTV/CAC > 3 – healthy business, can be scaled; 1–3 - you are working on the edge, you need optimization; < 1 - each new client is unprofitable, scaling kills the company. In SaaS, the industry standard is LTV/CAC ≥ 3 with Payback Period ≤ 18 months.

LTV is calculated differently depending on the model: for subscription it is ARPPU × average customer lifetime × margin; for e-com - AOV × purchase frequency × lifetime × margin. The option with a margin is more honest, because the numerator must contain profit, not revenue - otherwise you will get a beautiful figure that masks real losses.

The most common mistake in my practice is to consider CAC only as an advertising budget. The right CAC includes: advertising budget + marketer salary + tools + share of sales costs (if there is a sales department) + onboarding. As soon as you add all the articles, the client’s LTV/CAC often drops from a “nice” 5× to an “alarming” 1.8×.

LTV / CAC ratio calculator →