Definition
LTV:CAC is the ratio of lifetime gross profit to customer acquisition cost, a core unit economics health check.
Why it matters
The ratio shows whether customer value exceeds acquisition cost. It helps guide pricing, marketing spend, and growth strategy.
Pricing implications
If LTV:CAC is low, you may need higher pricing, better retention, or lower CAC. If it is very high, you may be under-investing in growth.
Measurement tips
Use cohort-based churn and contribution margin for a realistic LTV.
Checklist
- Use gross profit or contribution margin for LTV.
- Calculate CAC by channel and segment.
- Compare LTV:CAC to payback period targets.
- Track ratio trends over time.
- Avoid mixing net and gross churn assumptions.
- Recalculate after pricing changes.
- Segment by plan for accuracy.
- Use a consistent time window.