LTV:CAC ratio

What is the LTV:CAC ratio?

The LTV:CAC ratio compares how much revenue you earn from a customer (LTV) to how much it costs to acquire that customer (CAC). It’s a key metric for evaluating the profitability and sustainability of subscription businesses and ecommerce brands.

Why is the LTV:CAC ratio important?

For subscription businesses, this ratio reveals whether your customer acquisition efforts are paying off. If your CAC is too high compared to your LTV, you’re spending more to get a customer than they are worth. A healthy LTV:CAC ratio ensures long-term growth and profitability.

How is the LTV:CAC ratio calculated?

The formula is straightforward:

LTV:CAC Ratio = Customer Lifetime Value / Customer Acquisition Cost

What is a good LTV to CAC ratio?

Generally, a 3:1 ratio is considered ideal. This means you’re earning $3 for every $1 spent acquiring a customer. A ratio under 1:1 means you’re losing money, while anything over 5:1 might mean you’re underinvesting in marketing.

Example of LTV:CAC ratio calculation

If your LTV is $600 and your CAC is $200, your LTV:CAC ratio is:
600 / 200 = 3:1 — which is considered healthy.

Driftcharge Tip

Focus on improving both sides: reduce CAC with better marketing strategies and increase LTV through retention, upselling, and customer experience.

Ganesh Pawar

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Ganesh Pawar is the founder of Driftcharge, a subscription management app designed to help Shopify merchants streamline and scale their subscription businesses. With a deep focus on solving real-world pain points—like legacy account page support, flexible subscription options, and advanced analytics—Ganesh is passionate about building tools that drive growth and retention.