# What is LTV:CAC Ratio?

What is LTV:CAC Ratio? The ratio between a customer's lifetime value and their acquisition cost. A 3:1 ratio is healthy. Below 2:1 is risky.

## How it works in practice

LTV:CAC is the growth engine's 'health score.' 3:1 means for every $1 spent on acquisition, you earn $3. 1:1 means every dollar acquired returns $0 profit (a loss once operating costs are factored in).

## Related metrics

- LTV — the numerator
- CAC — the denominator
- Churn — directly affects LTV and the ratio
- Payback Period — complements LTV:CAC

## Common misconception

'An LTV:CAC of 5:1 is excellent.' Not necessarily. A 5:1 ratio can mean you're not exploiting your growth potential. If you can raise CAC (and acquire more customers) while staying at 3:1, it's worth doing. A 5:1 ratio with 0% growth is a missed opportunity.

## How to fix it

Low LTV:CAC? (1) Raise LTV — subscriptions, loyalty, upsells, (2) Lower CAC — SEO, referrals, email lead gen, (3) Improve product-market fit — high churn signals a product issue, (4) Break LTV down by cohort — are some cohorts better or worse on LTV:CAC?

## Real-world example

Beauty store: LTV $130, CAC $60 = 2.2:1 (low). Analysis: top 20% of customers had LTV $330 at the same CAC = 5.5:1. Conclusion: wrong target audience. Shifted targeting to a lookalike of the top 20% of customers. LTV:CAC rose to 3.8:1 within 6 months.

## Where to start

Calculate LTV:CAC once a quarter. Below 2:1 → pause paid acquisition until fixed. Between 2-3:1 → optimize. Above 3:1 → increase budget aggressively.

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Category: Analytics · From the [Jimmy OS KPI Glossary](https://jimmy-os.com/glossary/kpi.md) · Source page: https://jimmy-os.com/glossary/kpi/ltvcac-ratio