The LTV/CAC ratio measures the ratio between the lifetime value (LTV) of a customer and the cost of acquiring that customer (CAC). It’s an indicator of how efficiently a business is turning customer acquisition into long-term revenue.

A healthy LTV/CAC ratio suggests strong profitability and sustainable growth.

Formula: 

LTV/CAC ratio = Customer lifetime value ÷ Customer acquisition cost

What it tells you:

• LTV/CAC = 1: You're breaking even, spending as much as you're earning from each customer.
• LTV/CAC < 1: You're losing money. The acquisition cost is too high, or the customer value is too low.
• LTV/CAC > 3: Generally considered a good benchmark. It means you're acquiring customers efficiently.

Example:

If a customer’s LTV is $3,000 and it costs you $1,000 to acquire them, your LTV/CAC ratio is 3:1, which is a strong signal of profitability.