How to Calculate L T Vto C A C Ratio
What is L T Vto C A C Ratio?
Compares lifetime value to customer acquisition cost ratio to assess business unit profitability and sustainability. Critical SaaS metric.
Step-by-Step Guide
- 1Calculate CLV (lifetime profit per customer)
- 2Calculate CAC (total acquisition cost per customer)
- 3Divide: CLV ÷ CAC
- 4Compare: 3:1 acceptable, 5:1 excellent
Worked Examples
Input
CLV $2500, CAC $100
Result
25:1 ratio
Common Mistakes to Avoid
- ✕Using gross profit instead of net profit for CLV
- ✕Including one-time setup costs in recurring revenue CLV
Frequently Asked Questions
Why is this ratio important?
Shows how many dollars of value each acquisition dollar generates; indicator of sustainable growth.
How can I improve the ratio?
Increase CLV through retention and upsell; decrease CAC through channel optimization and referrals.
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