The ratio of customer lifetime value to customer acquisition cost — the headline test of whether your growth pays for itself.
LTV:CAC ratio = LTV ÷ CAC
Margin-adjusted LTV of £960 and fully-loaded CAC of £320.
£960 ÷ £320 = 3.0, i.e. a 3:1 LTV:CAC ratio
The LTV:CAC ratio divides what a customer is worth over their lifetime by what it cost to acquire them. It is the single clearest read on the health of your unit economics.
A ratio of 3:1 is the widely cited benchmark: each customer returns roughly three times their acquisition cost. Below 1:1 you lose money on every customer. A very high ratio, say 5:1 or more, often signals you are under-investing in growth and could afford to spend more to acquire faster.
For the ratio to be meaningful, use a margin-adjusted LTV and a fully-loaded CAC. Comparing revenue LTV against ad-only CAC produces a flattering number that does not reflect reality.
This ratio tells investors and operators in one number whether acquisition is creating or destroying value. It guides how aggressively you can spend on growth: a strong ratio means you can pour fuel on the fire, a weak one means fix retention or pricing before scaling spend.
Target around 3:1. Below 1:1 is unsustainable; above 5:1 often means you are leaving growth on the table by under-spending.
Around 3:1 is the standard benchmark. It means each customer returns roughly three times their acquisition cost, leaving room for overhead and profit while still investing in growth.
A ratio well above 5:1 can mean you are under-investing in acquisition. You could likely grow faster by spending more, accepting a lower ratio in exchange for capturing more of the market.
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