LTV:CAC Ratio
Customer lifetime value divided by customer acquisition cost.
LTV:CAC ratio is a customer's projected lifetime contribution margin divided by the cost to acquire them. A ratio of 3:1 or higher is generally considered healthy; 5:1+ is top-quartile for SaaS.
Context
LTV projection is the weak link. Lifetime value depends on retention, which depends on behavior you haven't seen yet — so LTV is always an estimate. Early-stage companies often overestimate LTV because they haven't had time to observe long-term churn.
Many operators now prefer CAC payback window over LTV:CAC for capital-efficiency decisions because payback doesn't require estimating future behavior — it measures realized contribution margin against realized acquisition cost.
A SaaS product with $2,000 CAC, $200 MRR, and 30-month average retention has LTV = $6,000 (at 100% gross margin) and LTV:CAC of 3.0 — the minimum threshold for viable unit economics.
LTV:CAC of 3.0 is the floor, not the goal. Best-in-class companies operate at 5.0+. Below 3.0 means either CAC is too high or retention / expansion is too low; both need fixing.
Related terms
CAC (Customer Acquisition Cost)
The fully-loaded cost of acquiring a new paying customer.
CAC Payback Window
The number of months until a new customer's contribution margin equals the cost to acquire them.
MER (Marketing Efficiency Ratio)
Total revenue divided by total marketing spend — a blended metric that resists attribution gaming.
Services that apply this
More Paid Media terms
ROAS (Return on Ad Spend)
Revenue divided by ad spend — the most reported and most misleading paid metric.
CPM (Cost per Mille)
Cost per 1,000 impressions — the core pricing unit for paid media.
CPC (Cost per Click)
The cost of a single click on a paid advertisement.
CPA (Cost per Action/Acquisition)
The average ad cost per conversion event — the core paid efficiency metric.