{"id":2782,"date":"2026-08-20T12:42:38","date_gmt":"2026-08-20T10:42:38","guid":{"rendered":"https:\/\/mairateam.com\/?post_type=glossary&p=2782"},"modified":"2026-08-20T15:56:01","modified_gmt":"2026-08-20T13:56:01","slug":"ltv-cac-ratio","status":"publish","type":"glossary","link":"https:\/\/mairateam.com\/en\/glossary\/ltv-cac-ratio\/","title":{"rendered":"LTV\/CAC ratio"},"content":{"rendered":"

The LTV\/CAC ratio<\/strong> divides customer lifetime value by the cost of acquiring the customer. It is the one number that summarizes the health of acquisition economics: how many times the investment in a new customer comes back. The usual reading: below 3 the model is fragile, 3 to 5 is healthy, well above 5 often means the company is underinvesting in growth.<\/p>\n

In short<\/h2>\n\n\n\n\n\n\n
Formula<\/strong><\/td>\nLTV \/ CAC, both in the same methodology and period<\/td>\n<\/tr>\n
Below 3<\/strong><\/td>\nAcquisition pays back slowly, the model is sensitive to swings and growth burns cash<\/td>\n<\/tr>\n
3 to 5<\/strong><\/td>\nThe healthy band for most models<\/td>\n<\/tr>\n
Well above 5<\/strong><\/td>\nA signal of underinvested acquisition: room to grow faster at the price of a lower ratio<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

How it is calculated<\/h2>\n

Formula and inputs<\/h3>\n

The ratio is a simple fraction: LTV \/ CAC. The work is in the inputs. LTV is calculated from contribution margin, not from revenue: average order value net of VAT \u00d7 contribution margin \u00d7 average number of orders per customer over the chosen horizon. CAC is all acquisition costs (media, creative, agency, a share of the team) divided by the number of new customers in the same period. Both numbers must cover the same segment or channel and the same period.<\/p>\n

The LTV horizon must be stated with every calculation. A fixed horizon of 12 or 24 months is comparable across cohorts; for subscriptions the length of the relationship is estimated from churn (average relationship length = 1 \/ monthly churn).<\/p>\n

Worked example<\/h3>\n

Worked example: a store has an average order of \u20ac250 net of VAT and a contribution margin of 30%, so \u20ac75 of contribution per order. A January-cohort customer places 6 orders on average within 24 months. LTV = 75 \u00d7 6 = \u20ac450. Acquiring that cohort took \u20ac120,000 in media and \u20ac30,000 in creative and agency fees, \u20ac150,000 in total, and brought 1,000 new customers. CAC = 150,000 \/ 1,000 = \u20ac150. LTV\/CAC = 450 \/ 150 = 3.0.<\/p>\n

Payback from the same example: the first order returns \u20ac75, half of CAC, and the second the rest. With six orders spread evenly over 24 months, the second one arrives roughly 4 months in.<\/p>\n

Why 3:1 is only a guideline<\/h3>\n

The same business produces different ratios depending on the LTV horizon. The table assumes a 30% margin and a CAC of \u20ac150:<\/p>\n\n\n\n\n\n\n\n
LTV horizon<\/strong><\/td>\nOrders<\/strong><\/td>\nLTV in margin<\/strong><\/td>\nLTV\/CAC<\/strong><\/td>\n<\/tr>\n
12 months<\/td>\n3<\/td>\n\u20ac225<\/td>\n1.5<\/td>\n<\/tr>\n
24 months<\/td>\n6<\/td>\n\u20ac450<\/td>\n3.0<\/td>\n<\/tr>\n
36 months<\/td>\n8<\/td>\n\u20ac600<\/td>\n4.0<\/td>\n<\/tr>\n
Predicted full relationship<\/td>\n10<\/td>\n\u20ac750<\/td>\n5.0<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Margin moves the ratio linearly: with the same 6 orders and a 20% margin, LTV is \u20ac300 and the ratio 2.0; at a 40% margin, LTV is \u20ac600 and the ratio 4.0. Payback decides the cash position: a ratio of 3.0 with payback after 4 months funds growth from its own revenue. The same ratio of 3.0 on a subscription that brings \u20ac12.50 of contribution per month for 36 months (LTV \u20ac450) only pays back after 12 months, and every new customer ties up cash for a year. The threshold of 3 comes from SaaS, with long relationships and LTV measured in margin; transferring it unchanged to a store with a 12-month horizon means measuring something else. A usable target always has three parts: the ratio, the LTV horizon and the maximum payback. The ratio is also tracked for the last euro of budget added, not as the account average: as budget grows, CAC rises and the ratio falls.<\/p>\n

How to read the ratio<\/h2>\n

A worked example: LTV of 450 in margin, CAC of 150, ratio 3.0. Every unit spent on acquisition returns three units of margin over the relationship. Whether that is enough depends on the payback period: if the first of those three units only returns after a year, growth ties up cash and a ratio of 3.0 can be less comfortable than it looks. That is why LTV\/CAC is always read together with payback time, never alone.<\/p>\n

From our own practice<\/h2>\n

We use the ratio for scaling decisions: segments and channels with a high ratio get more budget, even though that lowers their ratio. That is intentional, not a mistake: the goal is not the maximum ratio but the maximum profit. An illustrative example: a company at a ratio of 8 that refuses to raise budgets leaves growth on the table; a competitor at 4 outgrows it, because it can afford more expensive auctions.<\/p>\n

Common mistakes<\/h2>\n