What is the LTV:CAC ratio?

Customer lifetime value divided by customer acquisition cost: how much a customer is worth for every dollar spent to win them.

Updated 23 October 2026

Definition

The LTV:CAC ratio compares what a customer is worth over their lifetime with what it cost to acquire them.

Formula

LTV:CAC = lifetime value ÷ customer acquisition cost.

Reading it

A ratio of 3 to 1 is a common rule of thumb for a healthy subscription business. It's only meaningful when LTV is based on gross margin and CAC includes all acquisition costs, including salaries. Calculate it per channel: the average hides channels that lose money.

Payback

Also look at CAC payback: how many months of margin it takes to recover what you spent to win a customer.

GlossaryWhat is lifetime value?Lifetime value: an estimate of the total margin a business earns from a customer over their whole relationship. With the formula and a worked example.Read
GlossaryWhat is customer acquisition?Customer acquisition: the process and cost of winning new customers, from first contact to first purchase. In plain language, with practical notes.Read
GlossaryWhat is gross margin?Gross margin: revenue minus the direct cost of delivering it, as a share of revenue. Includes the formula and a worked example you can follow.Read

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