CLTV:CAC Ratio
Customer Lifetime Value to Customer Acquisition Cost Ratio
The ratio comparing how much a customer is worth over their lifetime versus what you paid to acquire them. A 3:1 ratio is the benchmark — below that, you're spending too much to acquire; above 5:1, you might be under-investing in growth.
SaaS company with $36,000 average LTV and $10,000 CAC has a 3.6:1 ratio — healthy but not exceptional. They could increase marketing spend by 20% and still maintain a healthy 3:1 ratio while accelerating growth.
CLTV:CAC is the single metric that tells you if your unit economics work. It's the startup investor's favorite question for good reason.
Below 3:1 means you're burning cash acquiring customers who won't pay back their acquisition cost fast enough. You're either overspending on marketing/sales or your product isn't sticky enough.
Above 5:1 sounds great but might mean you're leaving growth on the table. You could acquire customers more aggressively and still maintain healthy economics.
The trap: gaming this ratio by cutting acquisition spend. That improves the ratio but kills growth. The goal is efficient growth, not efficiency for its own sake.
Define ItOther Definitions
“LTV/CAC ratio measures the relationship between the lifetime value of a customer and the cost to acquire them. A ratio of 3x or higher is considered healthy for SaaS businesses.”
“The LTV:CAC ratio indicates how efficiently a company acquires customers. Target 3:1 or higher. Below 1:1 means losing money on each customer; above 5:1 may indicate underinvestment in growth.”
“LTV/CAC tells you whether your customer acquisition investments generate profitable returns. The benchmark is 3:1, meaning customers should be worth at least 3x what you paid to acquire them.”
CLTV:CAC Ratio compares customer lifetime value (total revenue from a customer relationship) to customer acquisition cost (total sales and marketing spend to acquire them). All sources agree on the 3:1 benchmark as healthy.
a16z frames it as essential for SaaS businesses demonstrating unit economics. Bessemer adds the nuance that too high a ratio (above 5:1) signals potential under-investment in growth. OpenView emphasizes it as a profitability indicator.
The calculation requires accurate LTV and CAC figures — which is where most companies struggle. Blended CAC vs. segment-specific CAC changes the ratio dramatically. And LTV depends on your churn assumptions.
MistakesCommon Mistakes
Using blended CAC instead of segment-specific figures
Calculating LTV with optimistic churn assumptions
Comparing ratios across different business models (SMB vs. Enterprise)
Improving ratio by cutting spend instead of improving efficiency
Ignoring how ratio changes by customer segment or channel
Knowing the definition won't fix the leak.
We find where your revenue engine is broken and show you exactly how to fix it. 6 weeks. Fixed scope.
Experience across
