CAC:LTV Ratio
The CAC:LTV ratio compares what it costs to acquire a customer (customer acquisition cost) against how much profit that customer generates over their relationship with you (lifetime value), the core test of whether your growth is efficient.
What it means
CAC is the fully-loaded cost of winning a new customer: ad spend, sales effort, promotions, divided by customers acquired. LTV is the total contribution margin that customer produces before they churn. The ratio tells you whether acquisition is an investment or a leak.
A common rule of thumb is that lifetime value should be at least three times acquisition cost (an LTV:CAC of 3:1 or better), with acquisition cost recovered within a reasonable payback window. But the right target depends on your margins, reorder cycle, and how long customers stay.
The ratio is only as honest as its inputs. Overstate LTV or understate the true cost of acquisition, and a losing model can look healthy right up until the cash runs short.
Why it matters for owner-operated businesses
CAC:LTV is the single clearest read on whether you can afford to grow. A strong ratio means every marketing dollar compounds; a weak one means spending more just loses more, faster.
It also governs how aggressively you can invest in acquisition, and it's among the first metrics any lender or investor will ask to see.