LTV vs CAC
Customer lifetime value against acquisition cost — how the two halves of unit economics relate, and how to compare them honestly.
LTV vs CAC
What's the difference?
LTV is what a customer is worth over their whole relationship — monthly revenue, times gross margin, times how long they stay. CAC is what you paid to win them — sales and marketing spend divided by customers acquired. One is the return, the other the investment; the business model is the gap between them.
In the running example a customer pays $200 a month at 75% gross margin and stays about 40 months: a $6,000 LTV. Acquiring them cost $2,000. That $4,000 spread, repeated across every cohort, is where all the value in a SaaS company comes from.
How to compare them?
Divide: $6,000 over $2,000 is a 3:1 LTV:CAC ratio, the classic healthy benchmark. But the ratio hides timing — LTV arrives over 40 months while CAC left the bank on day one, which is why the ratio must be read next to CAC payback (about 13 months here). A great ratio with a three-year payback still starves you of cash.
Compare like with like: gross-margin-adjusted LTV against fully-loaded CAC, on the same customer segment. Raw-revenue LTV against media-spend-only CAC is the most common way this comparison gets flattered.
Which failure mode are you in?
When LTV is the weak side, the leak is churn or pricing — customers leave too soon or pay too little for their tenure to accumulate. Fix retention and expansion before spending another acquisition dollar; every point of churn you remove raises LTV across all future cohorts at once.
When CAC is the weak side, the motion is wrong for the deal size: field-sales costs on self-serve prices, or paid channels bidding past their economics. The tell is a healthy LTV with payback drifting beyond 18–24 months — the product earns, but the machine that finds customers eats the earnings.