LTV / CAC

LTV / CAC compares the lifetime gross profit expected from a customer with the cost required to acquire that customer.

The ratio provides a measure of customer acquisition economics. A ratio of 3x means that each dollar spent acquiring a customer is expected to generate three dollars of lifetime gross profit.

Higher LTV / CAC generally indicates more attractive customer economics, reflecting higher customer value, lower acquisition costs, or both. A ratio below 1x indicates that the expected lifetime gross profit from a customer does not recover the cost of acquiring that customer.

Very high LTV / CAC is not necessarily optimal. It can indicate highly efficient acquisition, but it can also suggest that a company has room to invest more aggressively in growth. Because LTV depends on assumptions about retention and gross margin, the ratio should be evaluated alongside CAC Payback and observed customer behavior.

MetricFrame calculates LTV as ACV × Gross Margin ÷ (1 − GRR), then divides LTV by CAC to calculate LTV / CAC.