The ratio of customer lifetime value to acquisition cost; with LTV computed on contribution-margin dollars, the headline test of acquisition economics.
LTV:CAC compares what a customer is worth over their lifetime to what it cost to acquire them. The standard healthy benchmark is around 3.0x: Wall Street Prep cites roughly 3.0x as ideal in SaaS and notes that below 1.0x the business loses money acquiring customers (wallstreetprep.com). Burkland advises maintaining 3:1 or greater (burklandassociates.com), and Optifai reports a median of 3.2:1 across surveyed B2B SaaS, with 5:1+ indicating strong efficiency (optif.ai).
The metric is only as honest as its inputs. The critical move is computing LTV on contribution-margin dollars, not revenue or even gross margin: LTV equals average order contribution margin times purchase frequency times customer lifespan. A revenue-based LTV will make almost any acquisition look fundable.
Worked example (Demonstrative): A$900 of contribution-margin LTV against an A$300 new-customer CAC gives 3.0:1, right at the standard healthy benchmark. The same customer measured on revenue LTV might show 8:1 and lull you into overspending; the profit-true ratio is the one that matters.
Blufire computes the LTV side of this ratio on contribution margin and pairs it with CAC payback, because a 3:1 ratio that takes three years to recoup ties up working capital very differently from a 3:1 that pays back in months.