Calculate your Customer Lifetime Value (LTV) and Customer Acquisition Cost (CAC) to understand the efficiency of your marketing and sales efforts.
Calculated Customer Lifetime Value (LTV):
$600
Calculated Customer Acquisition Cost (CAC):
$100
LTV to CAC Ratio:
6:1
Interpretation: A ratio of 3:1 or higher is generally considered good, indicating that your customer acquisition efforts are profitable. A lower ratio might suggest that you are spending too much to acquire customers relative to the value they bring.
The LTV to CAC ratio compares the lifetime value a customer brings to the cost of acquiring them, helping you evaluate marketing efficiency.
Key formula: LTV to CAC = (Average Purchase Value × Purchase Frequency × Customer Lifespan) ÷ (Total Marketing & Sales Spend ÷ Number of New Customers)
LTV to CAC = (Average Purchase Value × Purchase Frequency × Customer Lifespan) ÷ (Total Marketing & Sales Spend ÷ Number of New Customers)
Example values used below: average purchase $100, frequency 2/year, lifespan 3 years, spend $5,000, 50 new customers.
Generally, 3:1 or higher is considered healthy; it suggests customers generate substantially more value than their acquisition cost.
Recalculate monthly or quarterly, and after major marketing changes, to monitor trends and campaign performance.
If CAC exceeds LTV, acquisition is likely unprofitable; consider lowering spend, improving targeting, increasing prices, or boosting retention.
Yes. For more accurate decisions, include recurring costs, returns, and gross margin adjustments when calculating LTV.
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