LTV:CAC Ratio Calculator

Revenue: $50/mo, Margin: 70%, Lifespan: 24 months, CAC: $200 LTV: $50 × 0.7 × 24 = $840 Ratio: $840 / $200 = 4.2:1 - Excellent Payback: 5.7 months

The LTV:CAC ratio, or Customer Lifetime Value to Customer Acquisition Cost ratio, is a fundamental metric for any business, especially those with recurring revenue models. It compares the total profit a business expects to generate from a single customer over their entire relationship with the company (LTV) against the total cost incurred to acquire that customer (CAC).\n\nThis ratio provides a powerful insight into the efficiency of your marketing and sales efforts and the overall health of your business model. The industry gold standard is often cited as 3:1, meaning you generate three times the revenue from a customer as you spent to acquire them.\n\nA ratio below 1:1, as indicated by 'Drowning,' means you are losing money on each customer acquired. Conversely, a high ratio, such as 5:1 or more, might suggest you could invest more aggressively in marketing to accelerate growth. Understanding this balance is critical for making informed decisions about pricing, marketing budgets, customer experience improvements, and overall business strategy.