Definition
LTV:CAC compares lifetime value to acquisition cost. It's a unit economics sanity check, but can mislead if definitions mismatch.
Formula
LTV:CAC = LTV / CAC
Example
If LTV is $5,400 and CAC is $600, LTV:CAC = $5,400 / $600 = 9.0.
Common mistakes
- Comparing revenue-based LTV to fully-loaded CAC (mismatch).
- Ignoring payback and cash constraints.
Why this matters
This term matters because small changes compound in SaaS metrics. Use consistent definitions by cohort and segment so you can diagnose retention, payback, and growth quality.
Practical checklist
- Write a 1-line definition for "LTV:CAC Ratio" that your team will use consistently.
- Keep the time window consistent (weekly/monthly/quarterly) when comparing trends.
- Segment results (channel/plan/cohort) before drawing big conclusions from blended averages.
- Use a calculator that references this term (e.g., LTV:CAC Calculator) to sanity-check assumptions.
- Read the related guide (e.g., LTV:CAC ratio: how to interpret the ratio (and avoid mistakes)) for context and common pitfalls.
Where to use this on MetricKit
Calculators
- LTV:CAC Calculator: Compute LTV:CAC ratio and CAC payback using ARPA, gross margin, churn, and CAC.
- Unit Economics Calculator: Model CAC, payback, LTV, and LTV:CAC together from ARPA, gross margin, and churn.
Guides
- LTV:CAC ratio: how to interpret the ratio (and avoid mistakes): Learn what LTV:CAC tells you, rough benchmarks, and how churn and payback change what 'good' looks like.
- Unit economics: CAC, payback, LTV, and LTV:CAC (how to model them): A practical unit economics guide: consistent definitions for CAC and LTV, how to calculate CAC payback period, and how to interpret LTV:CAC.
- Unit economics hub: CAC, LTV, payback, and runway (a practical stack): A practical hub for unit economics: CAC, fully-loaded CAC, LTV, payback, margin impacts, burn multiple, and runway planning.