LTV / CAC Ratio

Lifetime customer value divided by acquisition cost — the core unit-economics metric of any SaaS business.

What it actually means

LTV / CAC ratio is calculated as (average revenue per customer × average customer lifetime in months × gross margin) ÷ (total sales + marketing spend ÷ new customers acquired). The ratio is the core SaaS unit-economics test: above 3.0 is healthy and scalable; below 1.0 means you're losing money on each customer and growing accelerates loss; 1.0-3.0 is "treadmill mode" where growth happens but doesn't compound. The denominator is the place most SaaS founders cheat by ignoring real cost-to-serve.

Distinguishing it from look-alikes

The most common LTV mistake is using top-line revenue instead of gross-margin contribution. If your product has 60% gross margins, your effective LTV is 60% of the revenue calculation. Another common cheat: ignoring channel-specific CAC (paid social CAC vs. organic-content CAC are typically 5-10x different). Use cohort-by-cohort LTV/CAC for real visibility.

Examples

Healthy SaaS

LTV $2,400 / CAC $400 = 6.0× — payback in ~6 months, scales profitably

Borderline

LTV $1,200 / CAC $600 = 2.0× — growing but not compounding; risky

Underwater

LTV $800 / CAC $1,200 = 0.67× — every new customer is a net loss