Table of contents
LTV:CAC Ratio
TL;DR
The LTV:CAC Ratio measures how efficiently your marketing and sales investment turns into long-term revenue from customers. A strong ratio signals sustainable growth and marketing ROI.
What is the LTV:CAC Ratio?
This ratio compares the average lifetime value of a customer (LTV) to the cost to acquire that customer (CAC). It answers a fundamental question: Are you spending smartly on acquisition relative to the revenue customers generate?
For example, a 3:1 ratio means you generate three times the revenue compared to what you invest in acquisition. Anything below 1:1 is a red flag.
Why It Matters in B2B SaaS
- Validates the efficiency of your customer acquisition engine
- Guides marketing budget allocation with a revenue-first mindset
- Helps identify whether to optimize acquisition costs or focus on increasing customer lifetime value
- Influences strategic decisions on pricing, customer success, and retention initiatives
- A core metric to track for predictable, scalable growth
How to Measure LTV:CAC Ratio
- Calculate Customer Lifetime Value (LTV) — total expected revenue from an average customer over their lifespan.
- Calculate Customer Acquisition Cost (CAC) — total sales and marketing spend divided by the number of new customers acquired in a period.
- Divide LTV by CAC to get the ratio.
Best Practices
- Maintain a target ratio around 3:1 — balance growth with profitability
- Segment by customer type to identify where acquisition is more or less efficient
- Pair with payback period analysis for a full picture of acquisition health
- Continuously refine LTV and CAC with current data for accuracy and actionable insights
Final Thought
The LTV:CAC Ratio isn’t just a number—it’s a litmus test for your growth strategy. Hitting and maintaining the right ratio means you’re investing wisely and building a scalable, profitable SaaS business.
FAQs
What’s an ideal LTV:CAC ratio in B2B SaaS?
Around 3:1 is the industry sweet spot. Lower suggests overspending; higher means under-investing in growth.
How frequently should we update these metrics?
At least quarterly — market dynamics and customer behavior evolve.
Does CAC include all marketing expenses?
Yes, all direct sales and marketing costs tied to customer acquisition.
How does this ratio relate to churn?
Higher churn reduces LTV, which in turn lowers your LTV:CAC ratio, signaling risk.
Discover Petavue
Your AI-Powered Advantage
Request a Strategic Overview
Identify High-Impact Accounts
AI-driven insights pinpoint exactly which accounts and segments deserve your focus, and why.
Optimize Every Interaction
Proactively uncover customer friction points to enhance CX and boost adoption.
Guide Your Next Steps
Receive clear, expert-guided recommendations on the precise actions to take for growth.
Achieve Scalable Efficiency
Get fast, accurate intelligence across sales, marketing, and CX, without scaling headcount.
Identify High-Impact Accounts
Use AI to spotlight the accounts most likely to convert—ranked by revenue potential, engagement signals, and deal velocity.
Optimize Every Interaction
Uncover what drives buyer engagement at every stage—so your reps show up with the right message, at the right time, every time.
Guide Your Next Steps
Receive clear, expert-guided recommendations on the precise actions to take for growth.
Achieve Scalable Efficiency
Get fast, accurate intelligence across sales, marketing, and CX, without scaling headcount.
Identify High-Impact Accounts
Use AI to spotlight the accounts most likely to convert—ranked by revenue potential, engagement signals, and deal velocity.
Optimize Every Interaction
Uncover what drives buyer engagement at every stage—so your reps show up with the right message, at the right time, every time.
Guide Your Next Steps
Receive clear, expert-guided recommendations on the precise actions to take for growth.
Achieve Scalable Efficiency
Get fast, accurate intelligence across sales, marketing, and CX, without scaling headcount.