What is LTV:CAC ratio?

LTV:CAC ratio compares the lifetime value of a customer to the cost of acquiring that customer. It is calculated by dividing LTV by CAC. A ratio of 3:1 means every $1 spent on acquisition generates $3 in customer lifetime value.

What is a good LTV:CAC ratio?

A good LTV:CAC ratio is 3:1, meaning you earn $3 for every $1 spent acquiring a customer. Below 1:1 you are losing money. Between 3:1 and 5:1 is the sweet spot. Above 5:1 may indicate under-investment in growth.

How do I improve my LTV:CAC ratio?

Improve LTV:CAC by increasing LTV (raise AOV, improve retention, increase purchase frequency) or decreasing CAC (better ad targeting, higher conversion rates, organic channels, referral programs). Work on both simultaneously for the biggest impact.

What are LTV:CAC benchmarks by industry?

SaaS companies target 3:1 to 5:1. DTC ecommerce brands average 1.5:1 to 3:1. Subscription boxes see 2:1 to 4:1. Marketplace businesses achieve 3:1 to 6:1. Subscription models naturally produce higher ratios due to recurring revenue.

Why is 3:1 the golden ratio for LTV:CAC?

At 3:1, LTV splits into thirds: one-third for acquisition, one-third for operating costs, and one-third for profit. Below 3:1, profit margins compress dangerously. Above 5:1, you likely have untapped growth potential. The 3:1 to 5:1 range balances profitability and growth.

LTV:CAC Ratio Calculator

Find out if you're actually making money on each customer. Below 3:1 and you're in trouble. Above 5:1 and you're leaving money on the table.