What is a customer lifetime value and customer acquisition cost ratio?
The Customer Lifetime Value : Customer Acquisition Cost (CLTV : CAC) ratio is a critical subscription business metric. This ratio tells you how profitable a customer will be over their lifetime.
Remember, CLTV is the amount a customer pays you minus the cost of servicing them. CAC is the cost to acquire a customer. The ratio is a simple division:
|Customer Lifetime Value (CLTV)|
|Customer Acquisition Cost (CAC)|
Your CLTV is $450 and your CAC is $125. This means your CLTV:CAC ratio is 3.6.
What is a good CLTV : CAC ratio?
The CLTV : CAC ratio packs a lot of data into one number. Your marketing and sales spend is represented in the CAC. Your product pricing, cost of goods, and churn rate are represented in the CLTV. This ratio is a simple number that can be measured internally and against peers. Generally, it’s accepted that a CLTV : CAC ratio of 3 or higher is healthy.