Unit Economics

LTV:CAC: Lifetime Value to Customer Acquisition Cost ratio

How many pounds of lifetime gross profit each pound of acquisition cost generates.

Definition

LTV:CAC ratio is the ratio of customer lifetime value to customer acquisition cost. It expresses how many pounds of expected lifetime gross profit each pound of acquisition cost generates. The widely accepted healthy benchmark is 3:1 or higher.

Formula

LTV:CAC = LTV ÷ CAC

LTV:CAC = LTV / CAC

Worked example

A £14,400 LTV against a £4,000 CAC gives 3.6:1 — healthy. A £3,000 LTV against a £2,500 CAC gives 1.2:1 — broken.

Why it matters

LTV:CAC is the single most-cited efficiency ratio in commercial leadership. Below 1:1 the business loses money on every customer. Between 1:1 and 3:1 the business is sub-scale and burning cash to grow. At 3:1 or higher the business is generating sufficient gross profit per pound of acquisition cost to fund reinvestment.

Common mistakes

  • Computing LTV from revenue instead of gross profit (inflates the ratio)
  • Treating early-stage cohorts as steady-state
  • Optimising the ratio without checking absolute scale of LTV

Related terms

CACLTVCAC PaybackMagic Number

Read more in The Guide

Chapter: Unit Economics →

Sources & further reading

  • — Drawn from Evara's working definitions used on retained search and revenue advisory engagements (2024–2026).
  • — Reconciled against industry conventions in SaaStr, OpenView SaaS Benchmarks and Bessemer State of the Cloud.
  • — Reviewed by Rich Evans, Strategic Advisor at Evara and former operator/founder.

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