Profit
What is LTV:CAC ratio?
Lifetime value divided by what it cost to acquire the customer. It answers whether growth is buying something worth more than it costs, which a single-order profit number cannot tell you.
Why it matters in practice
The ratio is a sanity check on growth spending, and it is only as good as the two numbers going into it. Use profit for lifetime value, not revenue, or a repeat customer on thin margin will look like a windfall. Use fully loaded acquisition cost, which means all the spend that went to winning new customers divided by the new customers it actually produced, not just the campaigns that got clean credit. A ratio comfortably above one means the business can keep buying customers, a ratio near one means growth is running at cost, and a ratio far above one is often a sign of underspending rather than brilliance. Read it alongside payback period, because a strong ratio that takes a year to pay back still has to be funded for that year.
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