LTV to CAC Ratio Calculator
Measure the profitability and sustainability of your business model.
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Understanding the LTV:CAC Ratio
What is the LTV to CAC Ratio?
The LTV to CAC ratio is a critical business metric that compares the total lifetime value of a customer to the cost of acquiring them. In simple terms, it answers the question: “For every dollar we spend to get a new customer, how many dollars do we get back over their lifetime?” It’s the ultimate measure of the long-term profitability of your marketing and sales efforts.
What’s a Good LTV:CAC Ratio?
- Less than 1:1 – You are losing money on every customer you acquire. This is unsustainable.
- Exactly 1:1 – You are breaking even. You’re making back exactly what you spend, with no room for profit.
- 3:1 or higher – This is widely considered the “sweet spot.” It means your business model is healthy and profitable, and you have room to reinvest in growth.
- Over 5:1 – While this seems great, it might indicate that you are under-investing in marketing and could be growing faster.
How to Improve Your LTV:CAC Ratio
- Decrease CAC: Optimize your marketing channels, improve your conversion rates, and focus on more cost-effective acquisition strategies like SEO and referrals.
- Increase LTV: Improve customer retention with excellent service, implement upselling and cross-selling strategies, and build a strong brand to encourage repeat purchases.