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E-commerce CAC:LTV Ratio
growthThe ratio comparing customer acquisition cost to customer lifetime value. It measures whether a business spends a sustainable amount to acquire customers relative to the value those customers generate.
Definition
The CAC:LTV ratio is the single most important metric for evaluating the health of a growth-stage business. It answers a simple question: for every dollar you spend acquiring a customer, how many dollars do you get back? A ratio of 1:3 means every $1 spent on acquisition generates $3 in lifetime value. Investors, lenders, and operators all watch this number closely.
Industry consensus holds that a healthy CAC:LTV ratio is 1:3 or better (sometimes expressed as LTV:CAC of 3:1). Below 1:1 means you lose money on every customer, a situation only viable if you are investing heavily in market share with a clear path to improving unit economics. Between 1:1 and 1:3 is a warning zone. Above 1:5 suggests you may be underinvesting in growth and leaving market share on the table.
This ratio can be improved from both sides. Reducing CAC through better targeting, higher conversion rates, or organic channels improves the ratio. Increasing LTV through better retention, upselling, or higher prices also improves it. The best businesses work both levers simultaneously, creating a flywheel where happy customers refer new customers (reducing CAC) while staying longer (increasing LTV).
Formula
CAC:LTV Ratio = Customer Acquisition Cost / Customer Lifetime Value Example
A company has a CAC of $300 and an LTV of $1,200. The CAC:LTV ratio is 1:4, meaning each customer is worth 4x their acquisition cost. This is considered healthy and sustainable.
Related Terms
Customer Acquisition Cost (CAC)
growthThe total cost of acquiring a new customer, including all sales and marketing expenses divided by the number of new customers gained in that period.
Customer Lifetime Value (LTV)
growthThe total revenue a business can reasonably expect from a single customer account throughout the entire duration of their relationship.
Churn Rate
growthThe percentage of customers who cancel or stop using a product or service during a given time period. It is the inverse of retention rate.
Net Revenue Retention (NRR)
growthThe percentage of recurring revenue retained from existing customers over a period, including expansion revenue (upgrades, cross-sells) and subtracting contraction and churn.
Put It Into Practice
Use these calculators to apply cac:ltv ratio to your own numbers.
CAC vs LTV Calculator
Calculate your customer acquisition cost vs lifetime value ratio.
Open calculator →Churn Rate Calculator
Calculate customer and revenue churn rates with annualized projections.
Open calculator →ROI Calculator
Calculate your return on investment, net profit, and payback period.
Open calculator →