LTV:CAC Ratio

The ratio of the cost of acquiring a customer to the lifetime value of that customer, a key metric in determining the profitability of a customer acquisition strategy.

LTV:CAC Ratio

The ratio of the cost of acquiring a customer to the lifetime value of that customer, a key metric in determining the profitability of a customer acquisition strategy.

LTV:CAC Ratio

The ratio of the cost of acquiring a customer to the lifetime value of that customer, a key metric in determining the profitability of a customer acquisition strategy.

Formula

LTV:CAC Ratio = Lifetime Value (LTV) / Customer Acquisition Cost (CAC)

Know your metric

Importance of

LTV:CAC Ratio

  1. Long-Term Profitability Indicator

The Lifetime Value to Customer Acquisition Cost (LTV:CAC) ratio helps in assessing the long-term profitability and sustainability of customer relationships.


  1. Strategic Decision Making

A healthy LTV:CAC ratio enables strategic decisions regarding marketing spend, customer service investments, and product development priorities.


  1. Customer Relationship Value

This metric emphasizes the importance of nurturing customer relationships, guiding businesses to focus on both acquiring new customers and retaining existing ones.

Drawbacks of

LTV:CAC Ratio

  1. Complex Calculation

Calculating LTV and CAC accurately involves complex analysis and can be influenced by multiple factors, making it challenging to maintain consistency.


  1. Misleading Over Short Terms

The ratio can be misleading over short periods as initial acquisition costs might be high before customer value is fully realized.


  1. Requires Detailed Data

Effective use of the LTV:CAC ratio requires detailed, accurate data collection and integration across various customer touchpoints, which can be resource-intensive.

Try it now

Bespoke Subscription Analytics for your business.

Automatic Data Pulls

Set Alerts

Pre-Built Dashboards