LTV to CAC Ratio Calculator

The maths behind it

The ratio is lifetime value divided by acquisition cost: LTV ÷ CAC. Both terms must be on the same basis, contribution rather than revenue, and fully loaded acquisition cost rather than media alone.

A ratio of 1 means the business breaks even on a customer over their whole relationship, which is not a business. The conventional target is 3 or above.

Above roughly 5, the usual interpretation is underinvestment in growth rather than exceptional efficiency.

In practice

$168.43 of lifetime value against a $27 CAC is a ratio of 6.2.

That is well above the conventional target, which suggests the business could profitably spend more on acquisition. Raising CAC to $50 would still give a ratio of 3.4 and would buy considerably more customers.

Now the same calculation with revenue LTV of $306.24 against a media-only CAC of $18: a ratio of 17, which is meaningless and is the sort of figure that appears in pitch decks.

Both terms have to be honest for the ratio to say anything, and the ratio is unusually easy to inflate because both terms can be flattered independently.

The limitations

The ratio ignores timing entirely. A 6.2 ratio with a four-month payback and a 6.2 ratio with a three-year payback are the same number and completely different businesses.

It also uses an average LTV, so a business with a small number of exceptional customers and a large tail of one-time buyers shows a healthy ratio while most of its acquisition spend is unprofitable.

Putting it to use

Read it alongside payback period rather than alone. The ratio says whether the customer is worth acquiring; the payback says whether you can afford to wait for the money.

Then check the ratio by channel. A blended 6.2 can contain one channel at 12 and another at 1.4, and the correct action is to move budget rather than to celebrate the average.

What a high ratio is actually telling you

A ratio well above 3 usually means there is profitable growth available that is not being bought. The business could spend more per customer, reach a larger audience and still make money on each one.

That is a legitimate strategic choice, a business may prefer profit now to growth later, but it should be a choice rather than an accident, and a ratio of 6 is the signal to make it deliberately.

The exception is a business constrained by something other than acquisition economics: limited stock, limited capacity, or limited cash to fund the working capital that growth requires. In those cases the high ratio reflects a real constraint elsewhere, and the answer is to fix that constraint rather than to raise the acquisition budget.

Benchmarks for this ratio come almost entirely from venture-funded software businesses, where the cost structure and the retention profile are nothing like a product business. Applying a 3:1 target borrowed from that context is not obviously right for a retailer.

The more useful comparison is against your own history, since a ratio that has been falling for four quarters is a clearer signal than one measured against someone else's convention.

Tracking it by cohort rather than in aggregate also catches deterioration early, since a falling ratio in recent cohorts is invisible in a blend dominated by older ones.