LTV to CAC ratio

Divide lifetime value by acquisition cost. Three to one is the figure most investors have in their head as healthy: each customer eventually returns three times what it cost to win them.

Below one to one, growth destroys money, because every new customer makes the company poorer, and spending more on marketing accelerates the loss.

Far above three to one is not automatically good news. It often means the company is underspending on growth and leaving the market to someone else, and a sharp investor will ask why you are not spending more.

The ratio is only as honest as the two numbers behind it. See the entries for both.

• CAC (customer acquisition cost) — What it costs you, all in, to win one paying customer.
• LTV (lifetime value) — The total gross profit one customer produces before they leave.
• CAC payback period — How many months a customer takes to repay what you spent winning them.