CLTV to CAC Ratio
How many dollars of gross-margin lifetime value you earn per dollar spent acquiring a customer — lifetime value divided by acquisition cost per logo.
◆ Ratio
Formula
Built from
What it measures
The efficiency of your go-to-market engine: how much durable gross profit each acquisition dollar buys over a customer's lifetime. The numerator is lifetime value (revenue per logo, margin-adjusted, across a fixed horizon); the denominator is the fully-loaded cost to win one logo. It is a pure ratio of dollars to dollars.
Why it matters
This is the single number that tells you whether your business model works. A CLTV:CAC above 3x means you are creating real economic value with every sale; below 1x means you are destroying capital on each customer you win. Unlike gross margin or CAC in isolation, it forces the hard judgment all at once: are you pricing high enough, retaining long enough, and acquiring cheaply enough to be sustainable? Investors anchor on it to decide whether your growth is healthy or just bought.
How to read it
Higher is better, but read it as a trend and by cohort, never as a lone snapshot. A ratio of 5:1 means each acquisition dollar returns five dollars of lifetime gross profit; 1:1 breaks even on CAC alone (you still have opex to cover, so 1:1 loses money). Most healthy SaaS targets 3:1 or better; below 2:1 signals a cost-structure or retention problem. Split the ratio by segment — self-serve vs. sales-led, new vs. expansion product lines — because a healthy blended number routinely hides one channel that is bleeding cash.
What good looks like
Good
3:1 or higher — you retain roughly three dollars of gross profit for every dollar spent acquiring a customer, leaving headroom for CAC payback and reinvestment.
Watch
Between 2:1 and 3:1 — economics are defensible but tight; any rise in CAC or churn erodes the margin of safety quickly.
Bad
Below 2:1 — CAC is too high, retention too short, or pricing too low; fix the input before pouring more spend into acquisition.
Watch-outs
- Treating the 5-year horizon as real. The formula assumes every customer stays five years at constant ARPU — it is a durability proxy, not a measured lifespan. If churn accelerates or ARPU contracts, the ratio overstates value badly — sanity-check it against actual cohort lifetime (1 / churn rate).
- Letting margin hide revenue quality. A healthy gross margin on declining ARR still produces a flattering ratio right up until retention collapses; pair this metric with NRR.
- Double-counting CAC. If you load sales & marketing spend into the denominator, do not also deduct it from the gross margin in the numerator — it belongs in opex, not COGS, or you punish the ratio twice.
- Mixing per-logo and per-user units. This formula counts logos (accounts). If multi-seat expansion drives your model, either reflect that growth in the numerator or track the ratio separately by segment, or you will understate value.
Worked example
Hypothetical
A B2B SaaS platform earns $2,000 ARPU per year at a 70% gross margin, and spends $400,000 on sales & marketing to win 100 new logos. Using the fixed 5-year horizon as a durability proxy, lifetime value is $2,000 × 70% × 5 = $7,000 per customer. CAC per logo is $400,000 ÷ 100 = $4,000. The ratio is $7,000 ÷ $4,000 = 1.75:1 — the company recovers CAC but leaves little room for scale or an efficiency dip, a signal to raise pricing, cut churn, or lower CAC.
Variants & windows
The same metric re-expressed by a mechanical transform — a trailing window, a growth rate, a per-unit scaling, or a book/segment cut. Each is computed from CLTV to CAC Ratio above.
- CLTV to CAC Ratio Alternate cut of the parent metric
- CLTV to CAC Ratio Growth Rate Growth rate
- CLTV to CAC Ratio (Contracted - T3M) Trailing 3-month · Contracted book
- CLTV to CAC Ratio (Contracted - TTM) Trailing 12-month · Contracted book
- CLTV to CAC Ratio (Live - T3M) Trailing 3-month · Live book
- CLTV to CAC Ratio (Live - TTM) Trailing 12-month · Live book