The ratio of customer lifetime value to customer acquisition cost—a healthy LTV:CAC is 3:1 or higher, meaning each customer generates $3 in value for every $1 spent acquiring them.
LTV:CAC = Customer Lifetime Value (LTV) ÷ Customer Acquisition Cost (CAC)
| Metric | Definition |
|---|
| Customer Lifetime Value (LTV) | Average total revenue generated per customer over 365 days from first purchase |
| Customer Acquisition Cost (CAC) | Total advertising spend divided by number of new customers acquired |
| Metadata | |
|---|
| Type | Ratio |
| Data Source | Shopify, Meta Ads, Google Ads |
| Aggregation | Ratio |
Example
Your store acquired 500 new customers last quarter with a $45,000 marketing spend, and your customers have an average 365-day lifetime value of $270:
| Metric | Value |
|---|
| LTV (365d) | $270 |
| CAC | $90 |
| LTV:CAC | 3.0:1 |
How It Works
LTV:CAC divides the average revenue a customer generates over their lifetime (typically measured at 365 days) by the cost to acquire that customer. This ratio reveals whether your customer acquisition is sustainable—if you spend more to acquire customers than they’re worth, growth becomes unprofitable.
When to Use
| Scenario | Action |
|---|
| Evaluating acquisition sustainability | Ensure LTV:CAC stays above 3:1 for healthy unit economics |
| Setting marketing budgets | Use LTV:CAC to determine maximum sustainable CAC |
| Comparing acquisition channels | Identify which channels produce highest-value customers relative to cost |
| Forecasting profitability | Project long-term returns on customer acquisition investments |
Interpretation Guide
| LTV:CAC Ratio | Interpretation |
|---|
| Below 1:1 | Unsustainable—spending more to acquire than customers generate |
| 1:1 to 2:1 | Marginally profitable—limited room for overhead and reinvestment |
| 3:1 | Industry benchmark—healthy acquisition economics |
| Above 5:1 | May indicate underinvestment in growth opportunities |
| Metric | Relationship |
|---|
| LTV 365d | Numerator—full-year customer lifetime value |
| CAC | Denominator—cost to acquire each new customer |
| LTV 90d | Short-term LTV for faster payback analysis |
| Payback Days | Time to recover acquisition cost |
