LTV:CAC Ratio
The LTV:CAC ratio compares customer lifetime value (LTV) to customer acquisition cost (CAC), showing how many dollars of lifetime value each dollar of acquisition spend produces. A ratio around 3:1 is widely considered healthy.
The LTV:CAC ratio is the single clearest test of whether growth is profitable. It puts two metrics side by side — what a customer is worth versus what they cost to acquire — and tells you if the math works.
How to calculate the LTV:CAC ratio
Divide lifetime value by acquisition cost:
- LTV:CAC = Customer Lifetime Value ÷ Customer Acquisition Cost
- Example: an $800 LTV and a $200 CAC give a 4:1 ratio.
What is a good LTV:CAC ratio?
The widely cited benchmark is 3:1 — three dollars of lifetime value for every dollar spent on acquisition. Below 1:1 you lose money on each customer. Around 3:1 is healthy. Much higher than 3:1 (say 5:1+) can actually signal that you’re under-investing in growth and could afford to acquire more aggressively.
How to improve the ratio
You move the ratio by lifting LTV or lowering CAC:
- Raise LTV: reduce churn with dunning, increase order value with bundles and upsells, and add prepaid plans.
- Lower CAC: improve conversion, sharpen targeting, and lean on referrals and retention-driven word of mouth.
Frequently asked questions
What is a good LTV:CAC ratio?
Around 3:1 is the common benchmark — three dollars of lifetime value per dollar of acquisition cost. Below 1:1 is unprofitable, and far above 3:1 may indicate you could invest more in growth.
How do you calculate the LTV:CAC ratio?
Divide customer lifetime value by customer acquisition cost. For example, an LTV of $900 and a CAC of $300 produce a 3:1 ratio.
Why does the LTV:CAC ratio matter?
It shows whether your customer acquisition is profitable and sustainable. A healthy ratio means you earn back far more than you spend to acquire customers, which is the foundation of efficient, scalable growth.
Launch Shopify subscriptions without RecurX transaction fees
Start free on Shopify, or book a migration audit before changing subscription apps.