LTV to CAC Ratio (LTV:CAC)
The LTV to CAC Ratio compares the lifetime value of a customer to the cost of acquiring that customer. It is calculated by dividing Customer Lifetime Value by Customer Acquisition Cost. This ratio is one of the most important indicators of business sustainability and growth efficiency.
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LTV to CAC Ratio
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ltvcacHow to Calculate LTV to CAC Ratio
Why LTV to CAC Ratio Matters
A healthy LTV to CAC ratio means you are generating significantly more value from each customer than you spend to acquire them. Investors and operators use this ratio to gauge whether a business model is viable at scale. A ratio below 1x means you are losing money on every customer, while a ratio of 3x or higher typically signals a healthy, scalable business.
Industry Benchmarks
What is a good LTV:CAC? Based on industry benchmarks, a LTV:CAC considered bad is under 1x, break even is 1x - 3x, and healthy is 3x+. These figures vary by industry, product category, and business model, so use them as directional guidance rather than hard targets.
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Customer Lifetime Value (CLV)
Customer Lifetime Value is the total revenue a business can expect from a single customer account over the entire duration of their relationship. It combines purchase frequency, average order value, and customer lifespan into one forward-looking metric. CLV helps you understand the long-term worth of acquiring and retaining each customer.
Customer Acquisition Cost (CAC)
Customer Acquisition Cost is the total amount of money spent on marketing and sales to acquire a single new customer. It includes all advertising spend, marketing salaries, tools, and overhead divided by the number of new customers gained during that period. CAC is one of the most important unit economics for any ecommerce business.
Repeat Purchase Rate
Repeat Purchase Rate is the percentage of customers who have made more than one purchase from your store. It is calculated by dividing the number of customers with multiple orders by your total customer count. This metric reflects how well your business retains customers and drives loyalty over time.
Customer Churn Rate
Customer Churn Rate is the percentage of customers who stop purchasing from your store over a given period. It is calculated by dividing the number of customers lost during a period by the number of customers at the start of that period. Churn rate is the inverse of retention and a key signal of customer satisfaction.
Cost Per Acquisition (CPA)
Cost Per Acquisition is the total advertising cost required to generate one conversion, whether that is a purchase, a lead, or another defined action. It is calculated by dividing total ad spend by total conversions. CPA is the advertising-specific cousin of CAC and focuses specifically on paid channel efficiency.
Average Revenue Per User (ARPU)
Average Revenue Per User is the total revenue divided by the total number of unique customers over a given period. It measures how much revenue each customer generates on average and provides a snapshot of per-customer monetization. ARPU differs from AOV in that it accounts for all purchases a customer makes, not just a single order.
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