Lifetime Value to Customer Acquisition Cost Ratio (LTV:CAC)

• Metric
• Business Analysis
• Marketing

A critical metric that compares the lifetime value of a customer (LTV) to the cost of acquiring that customer (CAC).

Problem it addresses

Businesses need to ensure that the cost of acquiring customers does not exceed the value those customers bring over their lifetime. Without understanding the LTV:CAC ratio, companies may invest heavily in acquisition strategies that are not sustainable or profitable in the long term.

How it helps

The LTV:CAC ratio helps businesses evaluate the efficiency and sustainability of their customer acquisition and retention strategies. A healthy ratio indicates that a company is generating a good return on investment for its marketing efforts, allowing for sustainable growth. It guides strategic decisions on marketing spend, resource allocation, and product development to ensure long-term profitability.