What is LTV:CAC?
LTV:CAC compares customer lifetime value with customer acquisition cost to estimate whether a SaaS acquisition channel creates enough value to justify its cost.
Quick answer
LTV:CAC compares customer lifetime value with acquisition cost. It is useful for judging channel quality, but it depends heavily on retention, margin, attribution, and how you calculate lifetime value.
On this page
What you’ll learn
- Define LTV:CAC
- Understand why the ratio matters
- Avoid common LTV:CAC mistakes
- Segment LTV:CAC by acquisition source
LTV:CAC compares customer lifetime value with customer acquisition cost.
It is usually written as a ratio:
LTV:CAC = customer lifetime value / customer acquisition cost
If a customer is worth EUR 900 over their lifetime and costs EUR 300 to acquire, the LTV:CAC ratio is 3:1.
Why LTV:CAC matters
The ratio helps answer whether acquisition is economically healthy.
If a channel costs more to acquire customers than those customers are likely to return, growth can become expensive even when signups increase. If a channel creates customers with strong retention and expansion, it may deserve more investment even if upfront CAC is higher.
Lifetime value assumptions
Lifetime value depends on assumptions such as:
- Average revenue per account.
- Gross margin.
- Customer lifetime.
- Churn rate.
- Expansion revenue.
- Contraction revenue.
- Refunds.
Because these assumptions can be uncertain, LTV:CAC should be treated as a decision metric, not a precise truth.
Why blended LTV:CAC can hide problems
A blended ratio across the whole business can look healthy while one campaign is weak.
For example, organic search may create customers with long retention while a paid social campaign creates customers who churn quickly. A blended number can hide the difference.
Segment LTV:CAC by:
- Source.
- Campaign.
- Landing page.
- Plan.
- Country.
- Customer type.
- Cohort.
LTV:CAC and attribution
Attribution helps connect the ratio to the source that created the customer.
To calculate source-level LTV:CAC, you need:
- Acquisition cost by source or campaign.
- Customers attributed to that source.
- Revenue and retention for those customers.
- Refund, churn, and expansion events.
This is why LTV:CAC depends on reliable checkout and payment attribution.
Next steps
Read what customer acquisition cost is first if you need the CAC side of the ratio. Use MRR attribution and churn attribution to understand customer quality after acquisition.
Frequently asked questions
- What does LTV:CAC mean?
- LTV:CAC is the ratio between customer lifetime value and customer acquisition cost.
- What is a good LTV:CAC ratio?
- Benchmarks vary. Many SaaS teams treat 3:1 as a useful reference point, but the right target depends on margin, payback period, growth stage, and retention.
- Why can LTV:CAC be misleading?
- The ratio depends on assumptions about lifetime value, churn, gross margin, and attribution. Small changes in those assumptions can change the result.
- Should LTV:CAC be segmented?
- Yes. Segment by source, campaign, plan, customer type, and cohort. A blended ratio can hide weak channels and strong niches.
Continue learning
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Read guide Goals & FunnelsWhat is MRR?
Monthly recurring revenue, or MRR, is the normalized recurring subscription revenue a SaaS business expects in a month.
Read guidePut it into practice
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