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Metrics & Analytics

LTV:CAC Ratio

The ratio of customer lifetime value to customer acquisition cost, measuring unit economics efficiency.

Definition

The LTV:CAC ratio compares how much revenue a customer generates over their lifetime to how much it costs to acquire them. A ratio of 3:1 means you earn $3 for every $1 spent on acquisition. This metric is the fundamental measure of whether your SaaS business model works at scale.

Why It Matters

LTV:CAC ratio determines whether growth is sustainable. A ratio below 1:1 means you lose money on every customer. Below 3:1, and growth is often unprofitable after operating costs. Above 5:1 might mean you are under-investing in growth. This ratio guides decisions about acquisition spend, pricing, and retention investment.

How It Works

Divide Customer Lifetime Value by Customer Acquisition Cost. Calculate by channel to understand which acquisition sources have the best unit economics. Track over time to see if efficiency is improving or degrading. Use cohort analysis for more accurate forward-looking estimates.

Best Practices

  • 1Calculate LTV:CAC by acquisition channel to optimize spend
  • 2Target 3:1 or higher for sustainable, profitable growth
  • 3Investigate channels with ratios below 3:1
  • 4Use the ratio to guide acquisition budget allocation
  • 5Improve the ratio from both sides (increase LTV, decrease CAC)
  • 6Consider payback period alongside the ratio
  • 7Track cohort-based LTV for more accurate projections

Improve Unit Economics

Email improves LTV through better retention and expansion while reducing effective CAC through better conversion. Sequenzy helps you do both.

Learn More

Frequently Asked Questions

Most investors want to see 3:1 or higher. Below 3:1, growth is often unprofitable. 5:1 or higher might indicate you could grow faster with more investment. The optimal ratio depends on your capital efficiency goals and competitive dynamics.

Email improves both sides. On the LTV side, better onboarding increases retention, and upgrade emails drive expansion. On the CAC side, better nurturing converts more leads without additional spend. Dunning recovers revenue that would be lost. Email is one of the most efficient ways to improve unit economics.

Yes, absolutely. Blended LTV:CAC hides channel-level differences. Some channels might have 10:1 ratios while others are below 1:1. Channel-level analysis helps you invest more in efficient channels and fix or abandon inefficient ones.