LTV to CAC Ratio
Definition
LTV to CAC Ratio: The LTV to CAC ratio compares customer lifetime value to the cost of acquiring that customer. A ratio of 3:1 or higher is generally considered healthy for SaaS businesses, meaning you earn $3 for every $1 spent on acquisition. This ratio helps evaluate the efficiency of growth investments.
Example Usage
“Our LTV:CAC improved from 2:1 to 4:1 after we focused on higher-value customer segments.”
Common Misconceptions
Related Terms
Customer Lifetime Value
Customer Lifetime Value (LTV) is the total revenue a business can expect from a single customer account over the entire relationship. LTV is calculate...
Customer Acquisition Cost
Customer Acquisition Cost (CAC) is the total cost of acquiring a new customer, including marketing, sales, and onboarding expenses. CAC is calculated...
CAC Payback Period
CAC payback period is the number of months required to recover the cost of acquiring a customer. It's calculated by dividing CAC by the monthly gross...
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