Definition
LTV to CAC compares what a customer is worth over their life with what they cost to win. It is popular and easy to flatter, because small changes in assumed churn swing lifetime value enormously.
Formula
LTV:CACLTV = ARPA × Gross margin % ÷ Monthly revenue churn rate; LTV:CAC = LTV ÷ CAC
Example
ARPA of $1,200 a month, 78% gross margin and 1.25% monthly revenue churn gives an LTV of about $74,900. Against a $12,000 CAC, LTV:CAC is 6.2.
Benchmarks
Around 3 or higher is the common rule of thumb. Very high ratios can mean you are under-investing in growth.
Common mistakes
- Using revenue instead of gross profit.
- Assuming churn stays at today’s level forever.
- Treating it as more precise than payback. Prefer payback for decisions.
Examples use Demo Co, a fictional $3M ARR SaaS company, or a generic company where noted. Benchmarks are common reference points, not targets for every business.