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LTV to CAC ratio.

Definition

What it means.

The LTV to CAC ratio compares customer lifetime value to customer acquisition cost, stating how many dollars of value each acquisition dollar buys. A commonly used planning benchmark is 3 to 1, but it is not a universal break-even point. Profitability also depends on whether value means revenue or gross profit, the costs included and when customers pay.

Worked example

In practice.

A business has an LTV to CAC ratio below its 3 to 1 target. The team checks its assumptions, margins and payback period, then compares changes to acquisition cost, pricing and retention. Crossing the target improves that ratio; it does not by itself establish profit or prove that more spend will perform the same way.

Where this work happens: Paid Advertising

Put it in context.

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