LTV to CAC Ratio

The LTV to CAC ratio compares the lifetime value of a customer against the cost of acquiring them. You divide a customer's expected lifetime value by your customer acquisition cost. A ratio of 3 means each customer is worth three times what you paid to win them, which is the rough benchmark for a healthy SaaS business. Below 1 you are losing money on every sale; far above 3 you may be underinvesting in growth.

This single ratio captures whether your business model actually works. It ties together how much customers are worth, how long they stay, and how efficiently you acquire them. For a lean founder it is a discipline against two common traps: spending so much to acquire that no customer ever pays back, or being so cautious that you starve a profitable channel. A ratio that is too high is not a trophy; it often means you could spend more aggressively and grow faster while still making money on every customer.