CAC and LTV: The Two Numbers Every Business Should Track
What customer acquisition cost and lifetime value mean, how to calculate each, and why the LTV:CAC ratio (around 3:1) signals a healthy business.
Last updated: 2026-07-23
You can grow revenue and still go broke if each customer costs more to win than they ever pay you back. Two metrics guard against that: customer acquisition cost (CAC) and customer lifetime value (LTV). Read together, they tell you whether your growth engine actually makes money.
Customer acquisition cost
CAC is what it costs, on average, to acquire one paying customer. Add up your sales and marketing spend over a period and divide by the number of new customers it produced. If you spent $50,000 and gained 500 customers, your CAC is $100.
Customer lifetime value
LTV estimates the total profit a customer generates over the whole time they stay with you. A rough version multiplies average revenue per customer by gross margin and by the average number of periods they remain a customer before churning. The lower your churn, the higher the LTV.
The ratio that matters
- An LTV-to-CAC ratio around 3:1 is a common benchmark for a healthy business.
- Below 1:1 you lose money on every customer — growth makes things worse, not better.
- Much above 3:1 can mean you're under-investing in growth and leaving room on the table.
Also watch how long it takes to earn CAC back — the payback period. A short payback frees up cash to acquire the next customer sooner. Calculate both figures for your own business with the calculators below.