CAC and LTV Explained (+ the Ratio That Matters)

CAC (customer acquisition cost) is what you spend to win one customer; LTV (lifetime value) is the total profit that customer brings over time. The healthiest businesses keep an LTV:CAC ratio of about 3:1 — earning three dollars for every dollar spent acquiring. Here's how to calculate both and why the ratio matters, with free CAC and LTV calculators.

How to calculate CAC

CAC = total sales & marketing spend ÷ new customers acquired. Spend $10,000 and win 100 customers, and your CAC is $100. Track it with the CAC Calculator. Watch the trend — a rising CAC signals saturating channels or weakening targeting.

How to calculate LTV

LTV = average order value × purchase frequency × customer lifespan (times your margin for profit-based LTV). The LTV Calculator handles it. A higher average order value or lower churn both lift LTV directly.

The ratio that matters

• 3:1 — the classic healthy target: sustainable and profitable.
• Below 1:1 — you lose money on every customer; fix pricing, retention, or CAC fast.
• Above 5:1 — often means you're under-investing in growth and could scale spend.

Bottom line

Keep LTV comfortably above CAC (aim ~3:1), and improve the ratio by lowering acquisition cost or raising lifetime value. Run both free: CAC and LTV.