The ratio of a customer's lifetime value to the cost of acquiring them — the primary unit economics metric for assessing whether a B2B go-to-market model is sustainable and worth scaling.
Also known as:
LTV/CAC, Customer Lifetime Value to Customer Acquisition Cost
LTV (Customer Lifetime Value) = Average Annual Contract Value x Gross Margin % x Average Customer Lifetime (in years). Average Customer Lifetime = 1 / Annual Churn Rate. CAC (Customer Acquisition Cost) = Total Sales and Marketing Spend / Number of New Customers Acquired in the period. The ratio is LTV / CAC. A ratio of 3:1 means each customer generates three times what it cost to acquire them. The CAC payback period — how many months of gross margin it takes to recover the CAC — is a related metric often tracked alongside.
LTV:CAC is the fundamental test of whether a go-to-market model is economically viable. A ratio below 1:1 means the business is destroying value with each new customer acquired. A ratio of 3:1 is often cited as the minimum threshold for a healthy SaaS business. Above 5:1 can indicate under-investment in growth. The ratio also determines how aggressively a business can fund its sales and marketing: higher LTV:CAC justifies more acquisition spend per customer and supports faster scaling.
LTV:CAC is improved by four levers: increasing ACV (which raises LTV), improving retention (which extends customer lifetime and raises LTV), reducing acquisition cost (lowering CAC through more efficient channels), and improving gross margin. The most durable improvements come from ICP tightening — customers who fit the ICP closely tend to have higher retention, lower support costs, and greater expansion revenue, all of which improve LTV without requiring changes to CAC.
LTV:CAC is a diagnostic signal rather than an operational target in our work. We use it to assess whether the commercial model justifies the growth plan the team is pursuing. A business with an LTV:CAC below 2:1 should not be scaling acquisition headcount — the unit economics do not support it. More commonly, we find that LTV is being underestimated (because expansion revenue is not modelled into the lifetime value calculation) or CAC is being underestimated (because founder time and indirect costs are excluded). Correcting those assumptions typically changes the investment decisions the team makes about where to focus: retention, pricing, or acquisition efficiency.
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