LTV:CAC ratio
The LTV:CAC ratio is customer lifetime value divided by customer acquisition cost. It measures how many dollars of lifetime value each customer returns for every dollar spent acquiring them, and ecommerce operators use it to judge whether acquisition spend is compounding value or quietly destroying it.
| Variable | What it covers |
|---|---|
| LTV | Customer lifetime value. State the basis: the ratio only reads cleanly on Margin LTV, where breakeven is exactly 1.0. |
| CAC | Blended CAC - total acquisition spend ÷ all new customers. It needs no attribution model, so it works for whole-book and per-segment views; only per-channel ratios need attributed CAC. |
Worked example
Example numbers. The margin-basis 3.0 means each A$80 of acquisition buys back A$240 of lifetime margin - A$160 net per customer. The revenue-basis 7.5 describes the same customers and flatters them by the entire cost structure of the business.
What is a good LTV:CAC ratio?
There is no universal target. The 3:1 rule quoted everywhere comes from SaaS subscription economics - high gross margins, contractual retention - and transplants poorly to ecommerce. What your floor depends on: whether the numerator is revenue or margin (on a margin basis anything below 1.0 destroys value; on a revenue basis breakeven sits wherever your contribution margin puts it), how fast the value arrives (the ratio has no clock - see CAC payback), and how CAC behaves as spend scales (see marginal CAC). Build your own numerator honestly with the free Margin LTV calculator.
LTV:CAC ratio vs related metrics
| Metric | What it measures | How it differs from LTV:CAC |
|---|---|---|
| Margin LTV | Lifetime contribution margin per customer. | The honest numerator; on its own it says nothing about acquisition cost. |
| Blended CAC | Total acquisition spend ÷ all new customers. | The honest denominator; on its own it says nothing about what a customer is worth. |
| CAC payback | Months to recover CAC from contribution. | Adds the timing dimension the ratio is blind to. |
| Marginal CAC | Cost of the next customer, not the average of the last. | The ratio runs on average CAC; the scale decision runs on the marginal figure. |
Common mistakes
- Revenue LTV over CAC. Mixed bases make the ratio look far better than the underlying economics - at typical DTC margins, several times better.
- Ignoring the clock. A 3.0 that takes four years to arrive can still break cash flow; always pair the ratio with a payback window.
- Using platform-attributed CAC. Blended CAC needs no attribution model and is the honest denominator; per-channel attributed figures inherit every flaw of the model behind them.
- Assuming the ratio holds as you scale. Marginal CAC rises before blended CAC does, so the ratio on the next dollar is worse than the ratio on the average dollar.
- One ratio for the whole book. Value concentration means segments differ enormously; a healthy average can hide segments acquired at a permanent loss.
LTV:CAC ratio FAQ
Related
Blufire S4 Customer Value & Segmentation holds margin-true CLV against acquisition cost across the RFM cube, so the ratio is computed on dollars you keep rather than dollars that moved. The Math teaches the full method free.
Updated July 2026