Contracted Customer Lifetime Value to Customer Acquisition Cost

What it measures

The sum of revenue you'll collect from a customer over their full contract term, divided by the average sales-and-marketing spend to land one new logo. The result is a dimensionless multiple: how many dollars of contracted lifetime value you earn back for each dollar of acquisition cost. Only contracted recurring revenue and acquisition-attributable S&M spend count — usage upside, renewals beyond the term, and post-sale success costs are excluded.

Why it matters

This ratio answers the most fundamental question in a subscription business: do you earn back more than you spend to acquire a customer, and by how much? It separates good unit economics from bad. A 3:1 is workable; 5:1 or higher means your acquisition engine pays for itself and throws off surplus to fund retention, R&D, and growth. CFOs use it to size how much S&M budget the model can sustain; sales leaders use it to justify spend ("a 6:1 ratio means we can double CAC and still clear 3:1"); investors scrutinize it because it predicts whether the company scales profitably or burns cash chasing unprofitable logos.

How to read it

Higher is better, but read it against your cost of capital and gross margin, never as an absolute. A 5:1 means five dollars of contracted lifetime value for every acquisition dollar; a 2:1 is a warning that you're spending nearly as much as you'll ever collect; a 1:1 means unit economics are broken. The headline number is gross — pair it with gross margin (an 80% margin turns a 5:1 into a 4:1 after cost of goods) and with your payback target. When the ratio moves, decompose it: a falling ratio is either Contracted CAC per Logo rising (acquisition getting expensive) or Contracted CLTV falling (smaller deals, shorter terms, weaker retention). The root cause dictates the fix.

What good looks like

Watch-outs

• Ignoring contract-term variation. A $180K three-year deal has higher Contracted CLTV than a $180K one-year deal. Mix one- and three-year cohorts in the same ratio and term-driven swings will hide true acquisition efficiency — segment by term or normalize to annual value.
• Forgetting that Contracted CLTV assumes zero churn. Real customers leave, so realized lifetime value is usually lower. At 20% annual churn, a three-year Contracted CLTV near $180K yields closer to ~$115K in realistic value. Use the contracted ratio for strategic payback and a post-churn realized ratio for true performance.
• Polluting the denominator. Only acquisition-attributable S&M belongs in CAC; customer success, onboarding, support, overhead, and R&D do not. Allocate those in and your CAC inflates while the ratio collapses — be strict about spend attribution.
• Comparing across segments without normalizing. A 5:1 for SMB (short terms, low ACV) is not the same as 5:1 for enterprise (long terms, high ACV). Build separate ratios by segment — a fast-growing down-market 3:1 can beat a flat up-market 5:1.

Worked example