The LTV:CAC ratio compares the lifetime gross profit from a customer (LTV) to the cost of acquiring that customer (CAC). A ratio of 3:1 means you earn $3 in gross profit for every $1 spent on acquisition. It is the single most important unit economics metric for subscription businesses, used by investors to evaluate whether a business model is viable and scalable.
LTV:CAC tells you whether your business model works. If you spend more to acquire a customer than they are worth, you lose money on every sale.
It is one of the first metrics investors check for SaaS and subscription businesses. The ratio also reveals how aggressively you can invest in growth.
< 1:1 — losing money on every customer. Fix retention, pricing, or CAC before scaling.
1-3:1 — marginal. Improving but not yet ready for aggressive growth investment.
3-5:1 — healthy. This is the target range for most SaaS businesses.
> 5:1 — strong unit economics, but could signal under-investment in growth. Consider increasing spend to capture more market.
LTV = $2,133 (from ARPU $80, 80% GM, 3% monthly churn). CAC = $500. LTV:CAC = $2,133 / $500 = 4.3:1.
This suggests healthy unit economics with room to increase acquisition spend.
Using revenue-based LTV instead of gross-margin-based LTV. This inflates the ratio.
Comparing paid CAC with blended LTV (or vice versa). Both sides must use the same basis.
Computing LTV from immature cohorts. If your oldest cohort is 6 months old, your LTV estimate is a projection, not a measurement.
Financials slide: show LTV, CAC, and ratio together with payback period. Note the basis (gross margin, blended vs paid).
LTV:CAC 4.3:1 (GM basis); payback 12.5 months.
Use gross-margin-based LTV and consistent CAC definition (blended or paid).
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