LTV:CAC ratio is a measure of profitability per customer.

LTV = Lifetime Value

CAC = Customer Acquisition Cost

See also 'How to improve a low LTV:CA ratio'

LTV:CAC is like a slot machine:

Put a euro in at the top and LTV:CAC tells you roughly how many euros come

out at the bottom. If your money isn't multiplying, you need to tune the machine.

The rule of thumb for LTV:CAC is that you want LTV to be 3 x bigger than CAC.

If LTV:CAC is 1x, that means the gross profit over a customer's lifetime only just covers the cost of acquiring the customer - and the business won't be able to cover any operating expenses going forward.

So an investor would say: unless there is a plan to increase LTV or decrease CAC and improve the ratio over time, this business will always lose money - and always look bad - on a traditional accounting basis.

But if the LTV:CAC ratio is 3x or more, that means you're not only covering the cost of acquiring the customer, but you're contributing to other operating expenses.

A well balanced business model:

An out of balance business model:

See Unit Economics, CAC and LTV

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