Contracted CLTV to CAC Ratio
The ratio of contracted customer lifetime value to the sales and marketing cost of acquiring one new customer logo.
◆ Ratio
Formula
Built from
What it measures
The total revenue you expect from one average customer over their contracted term, divided by what it costs to acquire one new logo. It answers a single question: for every dollar you spend to land a customer, how many dollars of locked-in revenue do you get back over the life of that contract?
Why it matters
This is the unit-economics test that decides whether you can afford to grow. Boards and CFOs read it to judge whether acquisition spend pays for itself; below 1:1 you lose money on every customer, and scaling only burns cash faster. Sales leaders use it to justify headcount and budget; ops teams use it to calibrate acquisition efficiency. It collapses cost-per-logo and revenue-per-customer into one number that tells you if the deal pattern works.
How to read it
Higher is better, but read it alongside gross margin and contract term, never alone. A 5:1 ratio means each $1 of S&M buys $5 of contracted lifetime revenue; 3:1 is the conventional floor for sustainable growth; below 2:1 is a warning. Remember the numerator is contracted, not earned — that revenue spreads over the full term, so a strong ratio with a 36-month deal still means slow cash recovery. When the ratio falls, decompose it: is CCLTV dropping, is CACL climbing, or are you deliberately moving to bigger deals? Convert to payback with 12 × CAC ÷ (CCLTV × gross margin %).
What good looks like
Good
Your ratio is 3:1 or higher — each dollar spent acquiring a customer comes back several times over the contracted lifetime, so unit economics support scaled, efficient growth.
Watch
Your ratio sits between 2:1 and 3:1 — acquisition cost is eating a meaningful share of customer value, payback is workable but growth may be constrained until efficiency improves.
Bad
Your ratio is below 2:1 (or negative if CCLTV turns negative) — acquisition cost approaches or exceeds lifetime value, and scaling will compound losses rather than profit.
Watch-outs
- Using empirical (actual) CLTV in the numerator instead of contracted CLTV. This ratio measures how good the deal was at close — churn and realization are separate problems to track with CLTV:CAC, not here.
- Ignoring gross margin when reading payback. A 3:1 ratio recovers acquisition cost in ~10 months at 40% gross margin but under 5 months at 85%. The ratio alone tells you nothing about cash recovery speed — always pair it with margin.
- Treating 'contracted' as 'earned.' A 3-year deal lifts CCLTV the day it signs, but revenue arrives over 36 months. A great ratio can coexist with a thin cash position, so monitor contracted and realized side by side.
- Mixing contract lengths without weighting. If 30% of logos are on 1-year terms and 70% on 3-year terms, a simple-average CCLTV overstates the short-term cohort — use a logo-weighted average so the ratio reflects your real mix.
Worked example
Hypothetical
You close 10 new logos in Q2 and spend $800K on sales and marketing, so your CACL is $800K ÷ 10 = $80K per logo. Each logo signs an average $150K total contracted value, making your Contracted CLTV $150K. The ratio is $150K ÷ $80K = 1.875:1 — below the 2:1 threshold. Management decides to either raise contract value or cut acquisition cost next quarter.