Glossary term
LTV/CAC Ratio
Customer lifetime value divided by acquisition cost; above 3x is healthy, above 5x is excellent, below 1x destroys capital.
The LTV/CAC Ratio divides customer lifetime value by acquisition cost, measuring how much profit each acquisition dollar ultimately returns. Above 3x is considered healthy and above 5x excellent, while below 1x means the company loses money on every customer it acquires. The ratio is the headline efficiency metric for any subscription business, though it depends heavily on the retention assumptions baked into LTV. See LTV, CAC, and SaaSpocalypse 101.