LTV-to-CAC Ratio

The LTV-to-CAC ratio shows how much long-term revenue value a customer generates compared with what it cost to acquire that customer. It works by dividing the expected lifetime value of a customer by the acquisition cost, so a higher ratio means the business is getting more value for each dollar spent on marketing and sales. This helps judge whether a growth strategy is sustainable, because a company that spends too much to win customers may grow quickly but lose money over time.

Use this metric when evaluating paid marketing channels, sales campaigns, or subscription businesses where customers generate revenue over multiple purchases or months. It is especially useful for comparing acquisition efficiency across channels or checking whether customer acquisition spending is in a healthy range.

• Using revenue instead of true lifetime value, which ignores margin and retention
• Mixing time periods, such as comparing monthly CAC with annual LTV without converting them consistently
• Assuming a high ratio always means success without checking payback time, churn, and cash flow