LTV:CAC Ratio
Return on acquisition investment. The fundamental unit economics equation.
LTV:CAC = Customer Lifetime Value / Customer Acquisition Cost
What it measures
How much value you get back for each dollar spent acquiring a customer. A 3:1 ratio means every $1 in acquisition generates $3 in lifetime value. This is the most fundamental measure of business model health.
What to watch
- Below 1:1: Unsustainable. You're paying more to acquire customers than they're worth. Either reduce CAC or increase LTV immediately.
- 3:1: The standard target. Enough margin to cover operations and generate profit. Most VCs expect at least this ratio.
- Above 5:1: Potentially underinvesting in growth. You have room to spend more aggressively on acquisition without hurting unit economics.
In practice
A B2C subscription had 2.4:1 LTV:CAC, breakeven territory. They couldn't profitably scale paid acquisition. Instead of cutting CAC, they added a premium tier that increased average LTV by 40%, pushing the ratio to 3.4:1. The same acquisition spend now generated profitable returns.