Marketing
Lifetime value to CAC ratio
Compares the contribution a customer returns against the cost of winning them. Around 3 to 1 is the usual floor; below 1 destroys value.
The Formula
LTV : CAC = LTV / CAC
Compares the contribution a customer returns against the cost of winning them. Around 3 to 1 is the usual floor; below 1 destroys value.
| Symbol | Meaning | Unit | Notes |
|---|---|---|---|
| Lifetime value | Contribution over the customer's whole life | currency | Here 875.0, from a 35.0 monthly contribution over 25.0 months. |
| CAC | Average cost of winning one paying customer | currency | Here 250, giving 875.0 / 250 = 3.5. |
What Each Symbol Means
Lifetime valuecurrency
Contribution over the customer's whole life
Here 875.0, from a 35.0 monthly contribution over 25.0 months.
CACcurrency
Average cost of winning one paying customer
Here 250, giving 875.0 / 250 = 3.5.
See It Worked With Real Numbers
A formula on its own does not tell you which number goes where. The how to calculate customer lifetime value page applies this equation to a concrete case, shows every intermediate step, and names the mistakes that produce a wrong answer even when the algebra is right.
Where This Formula Appears
This equation is the working core of How To Calculate Customer Lifetime Value, filed under Business. Every number the guide produces comes from substituting into this one line.