LTV:CAC Ratio

LTV:CAC ratio compares a customer’s projected lifetime value to the cost of acquiring them. A ratio above 3:1 is the usual rule of thumb for healthy unit economics, though the right threshold varies by business model.

Both sides of the ratio are estimates, and dividing one estimate by another compounds whatever error is already in each: a lifetime value built on an assumed churn curve, divided by an acquisition cost that doesn’t reconcile to actual sales and marketing spend, produces a number that looks precise but isn’t. Grounding both sides in reconciled revenue and cost data is what makes the ratio worth acting on. See the SaaS metrics an AI can actually get right.