A good LTV to CAC ratio is roughly 3:1 or better, meaning a customer is worth about three times what it costs to acquire them. Below 1:1 you lose money on every customer. Between 1 and 3 the margin is thin enough that a rise in ad costs or a dip in retention can turn the business unprofitable without you noticing.
Lifetime value is monthly revenue per customer, multiplied by gross margin, multiplied by how many months they stay. Using revenue instead of gross margin is the most common way founders flatter this number, because it counts money that goes straight back out in hosting, support, and payment fees.
Be honest about lifespan too. If you have been live for four months you do not know your retention, and assuming twenty-four months because that is what good SaaS achieves will produce a ratio that says everything is fine right up until it is not.
Customer acquisition cost is everything you spent to get customers divided by the number of customers it got you. That includes ad spend, but also the tools, the contractor who wrote the copy, and any commission. Founder time is the one people leave out, and leaving it out makes organic channels look free when they are the most expensive thing you own.
Calculate it per channel rather than as one blended figure. A blended CAC hides the channel that is quietly losing money behind the one that is working, which is precisely the thing the number exists to reveal.
CAC payback is how many months of gross margin it takes to earn back what you spent acquiring a customer. Under about twelve months is healthy. Much longer and the business technically works but needs a great deal of cash to grow, because every new customer digs a hole you climb out of slowly.
If the ratio is thin, the fastest levers are retention and price, not cheaper ads. Keeping customers longer raises LTV on every future customer as well as the ones you have, and it compounds in a way that a temporary drop in cost per click does not.
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Around 3:1 or higher is the common benchmark, meaning a customer is worth roughly three times what it costs to acquire them. Below 1:1 you lose money per customer, and between 1 and 3 the margin is thin and vulnerable to churn or rising ad costs.
Monthly revenue per customer × gross margin × average months retained. Using revenue instead of gross margin inflates the figure, because it counts money that leaves again in hosting, support and payment fees.
Yes. Leaving it out is what makes organic channels look free when they are often the most expensive thing you own. Calculate CAC per channel rather than blended, so a losing channel cannot hide behind a working one.
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