Financial Glossary
LTV:CAC Ratio
The LTV:CAC ratio measures how much lifetime value a business earns from a customer relative to what it spends to acquire that customer. It is calculated by dividing customer lifetime value (LTV) by customer acquisition cost (CAC). A higher ratio indicates each acquisition dollar returns more revenue over the customer's relationship, while a low ratio signals that growth may be unprofitable.
Problem & Application
SaaS founders and subscription operators use the LTV:CAC ratio to decide whether to pour more money into sales and marketing or to fix retention and pricing first. A campground membership program or an STR management platform can apply the same lens to see whether acquiring a new account pays back over its expected tenure. The ratio is only as reliable as the inputs, so consistent definitions of churn, gross margin, and fully loaded acquisition spend matter.
In Short
Tracking the LTV:CAC ratio over time turns acquisition decisions into evidence-based choices rather than guesses about whether marketing is working.