Unit economics metric
LTV:CAC Ratio
The LTV:CAC ratio compares how much a customer is worth (LTV) against what they cost to acquire (CAC). It is the single most-cited unit-economics metric in SaaS investing and operating. Indie SaaS targets are typically 3:1 (healthy) to 5:1 (excellent); below 1:1 is unsustainable.
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Formula
LTV:CAC = LTV / CAC, expressed as a ratio (e.g. 3:1)
Where:
- LTV = Lifetime value (gross-profit version is more meaningful for this ratio).
- CAC = Customer acquisition cost over the same period (blended CAC for business-wide ratio).
Worked example
LTV (gross profit) is $833. CAC is $84. LTV:CAC = $833 / $84 = 9.9:1. That is excellent — most healthy SaaS sits 3:1 to 5:1.
What it tells you
- The fundamental health of the acquisition engine. A 3:1+ ratio supports growth investment; below 1:1 is unsustainable.
- Whether to spend more on acquisition or fix retention first. Low LTV:CAC due to high CAC vs. low LTV requires different fixes.
- Investor-grade health signal. Pitch decks lead with LTV:CAC for a reason.
What it does NOT tell you
- Payback period. A 5:1 LTV:CAC with a 36-month payback is harder to operate than 3:1 with a 6-month payback.
- Sample size. Calculated on 5 customers, the ratio is noise. Need 50+ customers and 6+ months of churn data.
- Mix shift. Different cohorts can have wildly different ratios; the blended number can mask important differences.
Common miscalculations
- Using revenue-LTV against ad-only CAC. Either both numbers are revenue-based or both are gross-profit-based; mixing inflates the ratio.
- Calculating against low-churn LTV. If churn is under 1%, LTV is unreliable, so the ratio is unreliable.
- Ignoring payback period. A 5:1 ratio over 36 months is not the same as 3:1 over 6 months.
What is a good LTV:CAC?
See the directional range on the customer lifetime value (LTV) benchmark page →
Frequently asked
- What if my LTV:CAC is 10:1+?
- Either you are under-investing in growth and could spend more on acquisition, or your LTV is overstated (often due to low-sample churn calculation). Investigate before celebrating.
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