The LTV:CAC ratio tells you how much lifetime value you generate for every dollar you spend acquiring a customer. It's the single most-cited unit economics metric in SaaS investor presentations.
The formula
LTV = MRR per customer × gross margin % × average customer lifetime (months)
LTV:CAC = LTV ÷ CAC
The 3:1 benchmark
A 3:1 LTV:CAC ratio means you generate $3 in lifetime gross profit for every $1 spent on acquisition. This is the standard VC benchmark. Below 1:1 means you're destroying value; between 1:1 and 3:1 is profitable but has room to improve; above 3:1 is healthy.
5 levers to improve your LTV:CAC
- Reduce CAC — improve conversion rates, reduce paid spend, invest in organic/product-led growth
- Increase MRR per customer — move upmarket, improve pricing, add upsell paths
- Increase gross margin — optimize infrastructure costs, reduce support headcount per customer
- Extend customer lifetime — reduce churn through product improvements and CS investment
- Segment — focus sales resources on cohorts with the highest LTV:CAC by channel and ICP
Use the Unit Economics Calculator to model different scenarios and see how changing each lever affects your LTV:CAC ratio.