How many times over a customer repays what it cost to win them. It compares lifetime value with acquisition cost.
Formula
LTV:CAC = LTV ÷ CAC
Example
Meera's gross-profit LTV is ₹4,200 and her CAC is ₹750, so her LTV:CAC is ₹4,200 ÷ ₹750 = 5.6. Each new customer brings back ₹5.60 of gross profit for every ₹1 spent winning them.
How you'll hear it
“We're at 5.6 on a gross-profit basis, so we're probably underspending on acquisition.”
What it helps you decide
Whether to spend more to grow, hold, or fix the economics first. A low ratio says cut CAC or raise LTV; a very high one can mean you are too cautious with acquisition.
Where people misread it
People divide revenue LTV by CAC and get a flattering number. Shopify cites 3:1 as common guidance, but that rule only means something with gross-profit LTV and a CAC that includes all acquisition costs.
The story
Meera's freelancer shows a slide: LTV:CAC of 8. She works it out herself and gets 5.6. Both are arithmetic from the same data. The difference is what goes on top.
| Revenue LTV | ₹6,000 |
| Gross-profit LTV | ₹4,200 |
| CAC | ₹750 |
| Revenue LTV ÷ CAC | 8.0 |
| Gross-profit LTV ÷ CAC | 5.6 |
|---|
The 8 counts the ₹1,800 she pays her suppliers as if it were hers. 5.6 is the honest number.
5.6 is still well above the 3:1 often cited as healthy. That suggests she could spend more to win customers. If a bigger budget pushed CAC to ₹1,400, the ratio would fall to 3.0, and she would still be inside common guidance.
Before she does, two checks. Is the 1-year customer life real for new customers, or only for her loyal early ones? And can she wait for the money? The ratio says nothing about timing. That is the CAC payback period.
All figures are illustrative. The 3:1 guide is a rule of thumb, not a law.
Check your LTV:CAC ratio
The example's numbers are filled in. Replace them with yours.
At or above 3:1. You may have room to spend more on acquisition, if you can wait for the money to come back.
Don't confuse it with
- ROAS: one period's sales against one period's ad spend; LTV:CAC looks across the customer's whole life.
- CAC payback period: how fast the money comes back, not how much.
Related terms
Want to use this at work? AI-led PPC Excellence is aFactor's 16-week program for paid ads.
Sources
- What Is a Good LTV to CAC Ratio? How to Calculate It, Shopify, 2026