Definition · also called LTV to CAC, LTV/CAC
The LTV:CAC ratio divides customer lifetime value by customer acquisition cost. It answers one question: for every dollar spent winning a customer, how many dollars of gross profit come back?
Below 1, every new customer loses money. Around 3, growth is healthy. Far above 5, you are probably under-investing in growth.
LTV:CAC ratio formula
LTV:CAC = customer lifetime value ÷ customer acquisition cost
- Use gross-margin LTV, not revenue LTV.
- Use fully loaded CAC: ad spend plus tools, freelancers, sponsorships and, if you're honest, the value of your own time.
- Pair it with CAC payback: CAC ÷ (ARPU × gross margin) = months to earn back acquisition cost.
Worked example
LTV is $600 (see the LTV example). You spend $1,500 a month on ads and tools and win 10 customers: CAC = $150.
- LTV:CAC = $600 ÷ $150 = 4:1
- CAC payback = $150 ÷ ($30 × 0.8) = 6.25 months
Healthy on both counts. If CAC rose to $300, the ratio would fall to 2:1 and payback would stretch to 12.5 months.
LTV:CAC ratio benchmarks
| Benchmark | Value | Source |
|---|---|---|
| LTV:CAC of the best SaaS businesses | higher than 3, sometimes 7 or 8 | David Skok, For Entrepreneurs |
| CAC payback, best SaaS businesses | 5–7 months | David Skok, For Entrepreneurs |
| CAC payback where profitability weakens | beyond 12 months | David Skok, For Entrepreneurs |
Skok presents these as guidelines, not laws: many healthy companies start below 3:1 and improve as they learn which channels work.
LTV:CAC ratio in practice: how indie makers use it
Bootstrapped makers can't wait 18 months to earn back acquisition spend, because there's no investor cash to cover the gap. That is why most grow through near-zero-CAC channels (SEO, building in public, launches) and only turn on ads when payback is fast:
A former performance marketer who managed over $1M in ad spend, he picked Talknotes as an idea he could scale with paid ads, grew it to about $7,500 MRR in 11 months and sold it for $200,000. (source: jeannen.com)
Spoke at LTV Conf 2018 on adding $100K+ a month to a SaaS business with Facebook ads, the paid-acquisition route that only works when LTV comfortably exceeds CAC. (source: youtube.com)
Plausible reached $1M ARR with no paid marketing: content, open source and word of mouth, so cash CAC stayed close to zero. (source: plausible.io)
Tally grew to about $175K MRR without ads, through a generous free plan and product-led word of mouth. (source: indiehackers.com)
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Frequently asked questions
What is a good LTV:CAC ratio?
3:1 or higher is the common SaaS benchmark. Below 1:1 you lose money on every customer; well above 5:1 can mean you could grow faster by spending more on acquisition.
How do you calculate LTV:CAC?
Divide customer lifetime value (ARPU × gross margin ÷ churn) by customer acquisition cost (sales and marketing spend ÷ new customers in the same period).
What is CAC payback period?
The number of months it takes for a customer's gross profit to repay what you spent to acquire them: CAC ÷ (ARPU × gross margin). Under 12 months is the usual target.
Does LTV:CAC matter if I don't run ads?
Yes, but count your time. Organic channels cost hours rather than cash; if a channel takes 20 hours to bring in two $10/month customers, it is expensive even with zero ad spend.
Related terms
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Maker examples are paraphrased from the cited sources and from each maker's IndieMakerList profile; revenue is self-reported unless marked verified. Spotted an error? Tell us.