What is the LTV:CAC ratio?
The LTV:CAC ratio compares a customer's lifetime value (LTV) to the cost of acquiring them (CAC). It is the single clearest test of whether a B2B SaaS business is acquisition-profitable.
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Definition
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:
LTV:CAC Ratio =
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.
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.
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The LTV:CAC ratio compares a customer's lifetime value to the cost of acquiring them. It measures how much value you get back for every dollar spent on acquisition and is the key test of whether unit economics work.
Divide LTV by CAC. For accuracy, use gross-profit LTV and a fully-loaded CAC that includes all sales and marketing costs, not just ad spend.
Around 3:1 is the widely-cited healthy benchmark. Below 1:1 means you're losing money on acquisition; 1:1–3:1 is under-earning; and consistently above 5:1 can signal you're underinvesting in growth.
Not necessarily. A very high ratio (well above 5:1) often means you could profitably spend more to grow faster. It can indicate underinvestment in acquisition rather than a purely good result.
LTV:CAC measures whether acquisition is profitable over a customer's lifetime; CAC payback measures how fast you recover the acquisition cost. Use them together — one for profitability, one for cash efficiency.
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