Marketing
Lifetime value to CAC ratio
Compares what a customer returns over their whole life against what it cost to win them. Around 3 to 1 is the usual floor; below 1 means acquisition loses money on every sale.
The Formula
LTV : CAC = (Monthly contribution x Lifetime months) / CAC
Compares what a customer returns over their whole life against what it cost to win them. Around 3 to 1 is the usual floor; below 1 means acquisition loses money on every sale.
| Symbol | Meaning | Unit | Notes |
|---|---|---|---|
| Lifetime months | Average number of months a customer stays | months | Derived from churn: 5 per cent monthly churn implies roughly 20 months. Here 30 gives 1800. |
| Monthly contribution | Revenue per customer times gross margin | currency per month | Here 80 x 0.75 = 60, the amount that actually services the acquisition cost. |
| LTV : CAC | Lifetime value expressed as a multiple of CAC | ratio | Here 1800 / 320 = 5.63. |
What Each Symbol Means
Lifetime monthsmonths
Average number of months a customer stays
Derived from churn: 5 per cent monthly churn implies roughly 20 months. Here 30 gives 1800.
Monthly contributioncurrency per month
Revenue per customer times gross margin
Here 80 x 0.75 = 60, the amount that actually services the acquisition cost.
LTV : CACratio
Lifetime value expressed as a multiple of CAC
Here 1800 / 320 = 5.63.
See It Worked With Real Numbers
A formula on its own does not tell you which number goes where. The how to calculate customer acquisition cost 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 Acquisition Cost, filed under Business. Every number the guide produces comes from substituting into this one line.