LTV:CAC Ratio
A fundamental unit economics ratio comparing the lifetime value of a customer to the cost of acquiring them.
In-Depth Overview
The LTV:CAC ratio measures the ROI and capital efficiency of customer acquisition engines. A ratio of 3:1 is widely considered the gold standard for high-growth SaaS and recurring commerce businesses. Ratios below 1:1 represent unsustainable growth, while ratios exceeding 5:1 often indicate that the business is under-investing in customer acquisition.
A B2B SaaS business with an average LTV of £15,000 and an acquisition cost of £3,000 maintains a healthy 5:1 LTV:CAC ratio.
Investors and executive leadership use LTV:CAC to govern customer acquisition spend and optimize sales cycles.
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