Check the single ratio investors use to judge whether your growth is sustainable.
What is the LTV:CAC ratio?
The LTV:CAC ratio compares how much a customer is worth (lifetime value) to how much it costs to acquire them (customer acquisition cost). It's the clearest single read on whether your growth engine is sustainable, which is why investors ask for it first.
LTV:CAC = Lifetime value ÷ Acquisition cost
If a customer is worth $900 in gross profit over their lifetime and costs $300 to acquire, your ratio is 900 ÷ 300 = 3:1.
What's a healthy ratio?
The widely cited rule is 3:1: every $1 spent on acquisition should return about $3 in lifetime gross profit. Read the bands like this:
- Below 1:1 — you lose money on every customer. Unsustainable.
- 1:1 to 3:1 — acquisition is too expensive or LTV is too low; fix unit economics before scaling.
- 3:1 to 5:1 — the healthy zone most SaaS and ecommerce businesses target.
- Above 5:1 — great efficiency, but often a sign you're under-investing and could grow faster by spending more on acquisition.
Use LTV as gross profit, not revenue
The most common mistake is plugging in revenue-based LTV. Use gross-profit LTV (revenue minus cost of serving the customer) so the ratio reflects real money. Pair this with your marketing budget and ROAS to connect customer-level economics to your overall ad spend.
Frequently asked questions
What is a good LTV:CAC ratio?
A ratio of about 3:1 is the widely accepted healthy benchmark — roughly $3 of lifetime gross profit for every $1 of acquisition cost. The 3:1 to 5:1 range is considered strong. Much higher than 5:1 can signal you are under-investing in growth.
How do you calculate the LTV:CAC ratio?
Divide customer lifetime value by customer acquisition cost. For example, a $900 LTV against a $300 CAC gives a 3:1 ratio. For accuracy, use gross-profit-based LTV rather than revenue.
Should LTV be based on revenue or gross profit?
Use gross profit. Revenue-based LTV overstates customer value because it ignores the cost of serving them. A gross-profit LTV gives a ratio that reflects actual money available to fund growth.
Why can a very high LTV:CAC ratio be a problem?
A ratio well above 5:1 often means you are being too conservative with acquisition spend. You could likely acquire more customers profitably — and grow faster — by investing more, even if it lowers the ratio toward the healthy 3:1 range.
What is LTV in simple terms?
LTV (lifetime value) is the total gross profit you expect from one customer over their entire relationship with your business — all their purchases minus the cost to serve them. It answers: "How much is this customer actually worth to us?"
What happens if LTV:CAC is below 1?
You are spending more to acquire each customer than they will ever return in gross profit. That is unsustainable — you lose money on every new customer until you raise LTV, lower CAC, or both.