LTV:CAC Ratio
In one line
The LTV:CAC ratio compares lifetime value to acquisition cost — the single cleanest test of whether a growth engine has healthy unit economics.
Going deeper
LTV:CAC is lifetime value divided by customer acquisition cost. Below 1 you lose money on every customer; 1–2 is fragile; 3 or above is healthy. The widely cited SaaS '3:1 rule' comes straight from this calculation.
Most operators read it alongside payback period. Even at 5:1, a 24-month payback is uncomfortable for a cash-tight business. The usual safe zone is recovering CAC within 12–18 months.
A counter-intuitive point: a very high ratio isn't automatically good news. Above 7:1 you are likely under-investing in marketing or leaving market share on the table. LTV:CAC is a guardrail, not a 'higher is better' score.
Related terms
LTV
Lifetime value (LTV) is the estimated total revenue — or profit — a single customer is expected to generate over the entire relationship with your business.
MarketingCAC
Customer acquisition cost (CAC) is the total marketing and sales spend required to win one new paying customer.
MarketingCPA
Cost per acquisition (CPA) is the average marketing spend required to generate one conversion — used to judge whether a channel or campaign is paying its way.
MarketingROAS
Return on ad spend (ROAS) is revenue divided by ad spend — the headline efficiency metric for performance campaigns where revenue can be tracked back to the channel.
MarketingARR
Annual recurring revenue (ARR) is recurring revenue normalised to a yearly view — the standard yardstick investors use to size a SaaS business.