The ratio of your Customer Lifetime Value (LTV) to Customer Acquisition Cost (CAC), or LTV:CAC Ratio, measures the total estimated revenue a customer will yield your business over their user lifespan in comparison to how much it cost to acquire that customer.

 

LTV:CAC Ratio = LTV / CAC

The general rule of thumb for a healthy startup is to maintain a LTV:CAC ratio of 3:1 or higher. Anything below that, and you are generating a sustainable amount of revenue for the cash being spent to bring in customers, and will likely have cash problems in the future. However, it is also important to keep in mind that an extremely high LTV:CAC ratio could be an indication that your business might be able to allocate more money to sales and marketing in order to bring in even more customers.