The LTV:CAC ratio compares the lifetime value of a customer (LTV) to the cost of acquiring them (CAC). It's the single clearest test of whether a business's unit economics work — how much value you get back for every dollar spent on acquisition. A ratio around 3:1 is the widely-cited healthy benchmark: three dollars of lifetime value for every dollar of acquisition cost.
How to calculate the LTV:CAC ratio.
The ratio is calculated simply by dividing customer lifetime value by customer acquisition cost:
Lifetime Value (LTV) ÷ Customer Acquisition Cost (CAC)
For an accurate ratio, use gross-profit LTV (not revenue LTV) and a fully-loaded CAC (all sales and marketing costs, not just ad spend). Mixing a generous revenue LTV with a bare ad-spend CAC inflates the ratio and hides thin margins.
One important companion: LTV:CAC tells you whether acquisition is worth it, but not how fast you recover the cost. Pair it with CAC payback period — the ratio answers "is it profitable?", payback answers "how quickly is my cash back?".
LTV:CAC example.
- Gross-profit LTV
- $6,000
- CAC (fully loaded)
- $1,500
- LTV:CAC ratio
- 4:1
How to read your ratio:
Why LTV:CAC matters for attribution.
A single, blended LTV:CAC hides the decision that actually matters: which channels have the best economics. Two channels can share the same CAC while one produces high-LTV customers (a 5:1 ratio) and the other churns fast (1.5:1). Averaged together, they look "fine" — and you keep funding the loser.
Per-channel LTV:CAC is fundamentally an attribution problem: you need LTV and CAC both tied to the acquisition source. Signal Sparrow computes each from real Stripe data — cohort LTV by source and true CAC by channel — so you can rank channels by the economics they actually deliver and shift budget toward the ones that compound.
