LTV:CAC Ratio
Short answer
LTV:CAC ratio is the conventional one-number test of a growth engine's durability. The 3:1 benchmark comes from SaaS investor heuristics (David Skok et al.): below it growth typically requires external capital, above ~5:1 you may be under-investing in acquisition.
Formula
LTV:CAC = Customer Lifetime Value / Customer Acquisition Cost
Divide LTV (gross profit you expect per customer) by CAC (what you spent to land that customer). A ratio of 3.0× means each customer generates three times what you spent winning them.
Why it matters
LTV:CAC is the cleanest one-number test of whether a growth engine is sustainable. Below 1.0× you're paying customers to use you. Around 3.0× is healthy. Above 5.0× and you may be under-investing in growth — leaving market share for competitors to take.
Benchmarks
People also ask
Common questions about LTV:CAC Ratio
What is LTV:CAC Ratio?+
LTV:CAC ratio compares the lifetime profit of a customer to the cost of acquiring them. The widely-quoted benchmark is 3:1 — three dollars of customer profit for every one dollar spent on acquisition.
How is LTV:CAC Ratio calculated?+
Divide LTV (gross profit you expect per customer) by CAC (what you spent to land that customer). A ratio of 3.0× means each customer generates three times what you spent winning them.
What is a good LTV:CAC Ratio?+
A healthy ltv:cac ratio is typically around 3.0–5.0× — healthy. Specific targets vary by industry and stage; check our benchmarks above for your sector.
Why does LTV:CAC Ratio matter?+
LTV:CAC is the cleanest one-number test of whether a growth engine is sustainable. Below 1.0× you're paying customers to use you.
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Related concepts
Where this matters most
See LTV:CAC Ratio in the context of saas & software.
Industry-specific benchmarks, common pitfalls, and what lenders look for in this sector.