LTV:CAC ratio

How much lifetime value you get back for every euro you spend acquiring a customer — the single clearest test of whether your growth engine actually makes money.

In plain English

The LTV:CAC ratio puts two numbers side by side: what a customer is worth over their whole relationship with you (lifetime value) and what it cost to win them (acquisition cost). Dividing the first by the second tells you, in one figure, how efficient your acquisition is. A ratio of 3:1 means each €1 you spend brings back €3 of value — comfortable margin to cover overhead and still profit. The ratio is so widely used because it cuts through vanity metrics: you can have impressive growth, but if you're spending €1 to earn €0.90 back, you're buying revenue at a loss.

The formula

LTV:CAC = Customer lifetime value ÷ Customer acquisition cost

For the ratio to be honest, your LTV should already be gross-margin-adjusted — otherwise you'll overstate value and flatter the ratio.

A worked example

Suppose an average customer is worth €600 in lifetime value, and it costs you €200 to acquire one (CAC). Divide the two.

LTV:CAC = €600 ÷ €200 = 3 : 1

A 3:1 ratio means every euro of acquisition spend returns three euros of value — right in the healthy zone. If you could cut CAC to €120 through better targeting, the ratio would jump to 5:1, signalling you might even spend more aggressively to grow faster.

What's a good LTV:CAC ratio?

The classic SaaS benchmark centres on 3:1, with a band on either side:

LTV:CAC	Verdict	What it signals
< 1 : 1	Losing money	You pay more to acquire than you earn back
~1–3 : 1	Underwater / thin	Margins are tight; improve LTV or CAC
~3 : 1	Healthy	The widely accepted sweet spot
> 5 : 1	Likely underinvesting	You could grow faster by spending more

Counter-intuitively, a very high ratio isn't the goal — it usually means you're too cautious and leaving growth on the table. The aim is a ratio comfortably above 3 while you scale acquisition as hard as the unit economics allow.

Frequently asked questions

What is a good LTV:CAC ratio?

Around 3 to 1 is the widely accepted sweet spot for SaaS — you earn three euros of lifetime value for every euro spent acquiring a customer. Below 1 to 1 you lose money, 1 to 3 is underwater or thin, and above 5 to 1 usually means you're underinvesting and could grow faster by spending more.

How do you calculate the LTV:CAC ratio?

Divide customer lifetime value by customer acquisition cost. If a customer is worth €600 in lifetime value and costs €200 to acquire, the ratio is 600 divided by 200, which is 3 to 1.

Why can a ratio that's too high be a problem?

A ratio above 5 to 1 often signals you're being too conservative with acquisition spend. You're leaving growth on the table — you could acquire more customers, accept a lower ratio, and still be highly profitable while capturing more of the market before competitors do.

Customer lifetime value (LTV) · CAC · CAC payback period · Gross margin

Learn more

The complete guide to value-based bidding · Value-based bidding without a data team