LTV:CAC ratio
The relationship between what a customer is worth to you over their lifetime and what you paid to acquire them. The most important single number in unit economics.
LTV:CAC is lifetime value ÷ customer acquisition cost. It's the single cleanest indicator of whether a business model has working unit economics.
Benchmarks for subscription businesses:
- Below 1:1 — you lose money on every customer. Either grow out of it fast or the business doesn't survive.
- 1-3:1 — marginal. You make some money per customer but probably can't fund growth out of profits.
- 3:1 — generally seen as healthy. Each customer pays back acquisition cost plus enough to fund overhead and growth.
- Above 5:1 — possibly under-investing in growth. You could afford to acquire more customers and still be profitable.
The "3:1 is healthy" benchmark assumes a roughly 12-month CAC payback period and 75%+ gross margins. Lower-margin businesses (e.g., 30-40% gross margin marketplaces) need higher ratios — often 5:1 or 7:1 — because each LTV dollar carries more cost.
Watch the ratio over time, not just a snapshot. Rising LTV:CAC (because retention is improving or CAC is dropping) is a great signal. Falling ratio is worth a meeting about.
See also
- CAC (Customer Acquisition Cost) — The total cost of getting one paying customer. Marketing + sales spend in a period, divided by new customers from that period.
- LTV (Lifetime Value) — The total revenue (or gross profit) you expect to earn from a customer across their entire relationship with you.
- CAC payback period — The number of months it takes for the gross profit from a new customer to repay what you spent to acquire them.
- Unit economics — The revenue and costs associated with one customer (or one transaction). The fundamental health check for whether scaling makes the business better or worse.
- Gross margin — Revenue minus the direct cost of delivering that revenue, divided by revenue. The percentage of each dollar of revenue you keep before operating expenses.
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