MarginWorkshopCustomer LTV : CAC Ratio
Check your customer lifetime value against acquisition cost with the standard LTV:CAC ratio health check.
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Methodology
Formula: LTV:CAC ratio = lifetime value / acquisition cost.
Assumption: the 3:1 (healthy) and 5:1 (strong) bands are widely cited general business/marketing rules of thumb, not contracting-specific research. Treat them as a starting point for discussion, not a mechanical target.
Limitation: this is the terminal synthesis engine of the Sales & Customer Economics cluster, it depends on a CAC figure (Customer Acquisition Cost) and a lifetime-value figure (Recurring Contract Value) both being known first.
Frequently Asked
- What ratio is generally considered healthy?
- A commonly cited benchmark is 3:1 or higher, lifetime value at least three times acquisition cost, though the right target depends on your margin structure and how long it takes to recover CAC.
- What happens if the ratio is close to 1:1?
- A ratio near 1:1 means a customer is barely worth more than it costs to acquire them, leaving little room for anything to go wrong, churn, price pressure, before acquisition becomes a losing proposition.
- Where does the lifetime value figure come from?
- It should reflect a realistic expected customer lifetime and recurring value, from Recurring Contract Value or your own retention data, not an optimistic best-case assumption.
- Can this ratio be too high?
- A very high ratio can also mean underinvestment in growth, spending too little on acquisition relative to what customers are actually worth, leaving growth on the table.