LTV / CAC Ratio Calculator

What is LTV / CAC Ratio?

The LTV / CAC ratio measures the relationship between how much you spend to acquire a customer and how much that customer is worth over their lifetime. It's one of the most important metrics for assessing the health and sustainability of your business model. A healthy ratio indicates that your customer acquisition strategy is efficient and sustainable.

How to Calculate LTV / CAC Ratio

Example Calculation

If your average customer is worth $600 (LTV) and it costs $150 to acquire them (CAC):

• LTV: $600
• CAC: $150
• Ratio: $600 / $150 = 4.0x

This means for every $1 spent on acquisition, you earn $4 in customer lifetime value. This is a healthy ratio.

What is a Good LTV / CAC Ratio?

A good LTV / CAC ratio varies by industry and business model:

• Below 1.0: Unhealthy - losing money on each customer
• 1.0 - 3.0: Low - needs improvement
• 3.0 - 5.0: Healthy - good balance
• Above 5.0: Excellent - very healthy, consider scaling up

Why is LTV / CAC Ratio Important?

The LTV / CAC ratio is crucial for several reasons:

• Business Health: Indicates whether your business model is sustainable
• Investment Decisions: Helps determine if you can afford to scale acquisition
• Pricing Strategy: Informs pricing decisions to improve profitability
• Marketing Efficiency: Measures how effectively marketing dollars are being spent
• Investor Confidence: Key metric for investors evaluating business viability

Tips to Improve LTV / CAC Ratio

• Increase LTV: Improve retention, upsell, and increase ARPU
• Reduce CAC: Optimize marketing channels, improve conversion rates
• Target Better: Focus on high-value customer segments
• Improve Onboarding: Reduce time to value for new customers
• Build Loyalty: Create programs that encourage long-term relationships