Glossary
LTV/CAC Ratio
The ratio of customer lifetime value to customer acquisition cost — the foundational SaaS unit economics metric. 3:1 is good; 5:1 is excellent.
By Amit Tyagi, Fitoor Capital · AletheiaAI Glossary
Definition
LTV/CAC Ratio compares the revenue you'll earn from a customer over their entire lifetime against the cost to acquire them.
Formula: LTV/CAC = (Average Revenue per Customer × Gross Margin × Customer Lifetime in months) / Customer Acquisition Cost. LTV is typically expressed in months; CAC includes all sales and marketing costs attributable to acquisition.
Benchmarks: 3:1 is healthy; 5:1 is excellent; below 1:1 means you're losing money on every customer; above 5:1 may indicate under-investment in growth.
India Context
Indian SaaS investors at Series A explicitly compute LTV/CAC and stress-test the inputs. Common gotchas in Indian decks: using gross revenue (not gross profit) for LTV calculations, using survivor-bias customer lifetime estimates, and excluding founder time from CAC. Investors recompute with stricter assumptions.
Example
SaaS startup: ARPU ₹50,000/month, 70% gross margin, average customer lifetime 36 months, CAC ₹2L. LTV = ₹50,000 × 0.7 × 36 = ₹12.6L. LTV/CAC = ₹12.6L / ₹2L = 6.3x — very healthy.
Frequently Asked Questions
Related Terms
Customer Acquisition Cost — how much a company spends on average to acquire one …
Lifetime Value — the total revenue a business expects to earn from one customer …
The revenue and costs attributable to a single unit of business (one customer, o…
The percentage of revenue left after subtracting the direct cost of delivering y…
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