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Guide

What is the LTV to CAC ratio?

What is the LTV to CAC ratio?

5 min read

Short answer

The LTV to CAC ratio compares the profit a customer brings you over time with what it cost to win them. A ratio of 3 to 1 or better is a common rule of thumb. The free LTV and CAC calculator on this site works it out from your order value, margin, repeat rate and acquisition cost.

The two halves

LTV, customer lifetime value, is the profit a customer brings you for as long as they keep buying. CAC, customer acquisition cost, is what you spend to win one new customer. The ratio is LTV divided by CAC.

Use profit, not sales

If a customer buys ₹1,000 of goods twice a year for three years and your margin is 30%, they bring you ₹6,000 in sales but ₹1,800 in profit. If winning them cost ₹600, the ratio is 3 to 1. Using sales would make it 10 to 1, and you would spend far too freely.

Try it now: LTV and CAC Calculator → · Break-even ROAS Calculator →

What CAC includes

Your ad spend and the costs of running the campaigns, divided by the new customers they brought in over the same period. Count only new customers, not repeat buyers, and use the same dates for both.

What a good ratio looks like

Many businesses aim for 3 to 1 or better, but it is a rule of thumb. A business with a high margin and fast repeat orders can run at a lower ratio. One that waits a long time to earn its money back needs a higher one, which is why payback time matters as much.

Payback time

How many months of a customer's profit it takes to earn back what winning them cost. A shorter payback means you can reinvest sooner and grow with less cash tied up.

How to improve it

Lower CAC by converting more of the visitors you already pay for, and by aiming ads at the customers who come back.

Raise LTV by getting customers to buy again: follow-up email and WhatsApp, bundles, subscriptions where they suit the product, and a good first delivery.

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Free LTV and CAC calculator →Free break-even ROAS calculator →How to calculate profit margin on Shopify →

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