LTV:CAC Ratio

What is LTV:CAC Ratio?

The LTV:CAC Ratio measures the relationship between Average Lifetime Value (LTV) and Customer Acquisition Cost (CAC).

How is LTV:CAC Ratio used?

This metric is mainly used to assess customer profitability. It reflects the balance between the value a customer brings over their lifecycle and the investment required to acquire them. The ratio is useful for determining when to scale customer acquisition spending, identifying the most profitable customer segments, and highlighting areas where acquisition costs should be optimised.

How to calculate LTV:CAC Ratio

To calculate the LTV:CAC Ratio, divide the Average Lifetime Value (LTV) of your customers by the Customer Acquisition Cost (CAC).

Best Practices

Aim for a healthy balance; too high a ratio might suggest underinvestment in customer acquisition, while too low indicates inefficiency. Be mindful of the time value of money: a higher CAC might be justified if the LTV is realised up front.

Common Misconceptions

A common misunderstanding is that a higher LTV:CAC ratio is always better. While a high ratio can indicate efficient use of acquisition resources, a very high ratio can suggest underinvestment in growth.

FAQs

Supported Integrations

Get this metric directly out of one of our supported integrations.

Stripe

Online payment processing solution that supports e-commerce, subscriptions, and invoicing.

Recurly

Subscription management and billing platform.

Google Analytics

Comprehensive web analytics service for tracking and reporting website traffic and user behaviour.

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