LTV:CAC ratio
How many rupees a customer gives back for every rupee spent acquiring them. Built on margin and a fixed window it's one of the most useful numbers in D2C. Built on revenue over a long window, it can make a loss-making business look healthy.
Both from the same acquisition cohort. On a CM1 basis, 1.0 is break-even. Don't use CM2 here: it already deducts ad spend, so CAC would be counted twice.
What is LTV:CAC?
LTV:CAC puts the two halves of customer economics side by side: what a customer is worth, and what they cost to win. A ratio of 2:1 means every rupee of acquisition spend comes back as two rupees of value.
Whether that "value" is real depends on how the LTV was built. If it's contribution margin over a window you can wait for, the ratio tells you something true about profitability. If it's revenue over a year or more, it mostly tells you how big the numerator was allowed to get.
How it's calculated
Pick one acquisition cohort, say everyone whose first order was in March. Take that cohort's CM1 LTV at your chosen window, and divide by what it cost to acquire them.
| Input | Source and range | What it gives us |
|---|---|---|
| cm1_ltv | Cohort CM1 within N days of first order ÷ cohort size | Numerator |
| acquisition_spend | Paid spend in the cohort's acquisition month | Part of the denominator |
| new_customers | First-time buyers in that month, delivered orders only | New customer CAC = spend ÷ new customers |
Why "3:1" doesn't travel
3:1 is quoted as a universal target, but it only means something once three choices are pinned down. Change any one and the same business moves above or below the line.
- 1Revenue or margin?At a 38% margin, a revenue-based ratio is about 2.6x the margin-based one for the same customers.
- 2Which window?A 365-day LTV is bigger than a 180-day one, but you wait a year to collect it.
- 3Which CAC?Blended CAC can be well below new customer CAC, inflating the ratio further.
Worked examples
Example 1: One cohort, four ratios
An illustrative cohort acquired at a new customer CAC of ₹570, with a 38% CM1 margin.
| LTV basis | Window | LTV | nCAC | LTV:CAC |
|---|---|---|---|---|
| Revenue | 180 days | ₹1,860 | ₹570 | 3.3:1 |
| Revenue | 365 days | ₹2,400 | ₹570 | 4.2:1 |
| CM1 | 180 days | ₹707 | ₹570 | 1.2:1 |
| CM1 | 365 days | ₹912 | ₹570 | 1.6:1 |
- 4.2:1Clears the "3:1" bar comfortably. It's also the least useful number on the page for deciding spend.
- 1.2:1Each customer leaves ₹137 after acquisition cost within six months (₹707 − ₹570). Profitable, but thin, and every rupee of operational cost still has to come out of it.
- TakeawayPushing nCAC up 20% to ₹684 would bring the 180-day CM1 ratio to roughly 1.0. The revenue ratio would still read 3.5:1.
Example 2: The cheaper channel isn't the better one
Two illustrative acquisition channels, compared on 180-day CM1 LTV.
Using LTV:CAC to decide
These ranges assume CM1 LTV over a fixed window (180 days is a common choice) and new customer CAC. They're starting points: brands with high operational costs need more headroom.
Common mistakes
- Revenue on top, CAC belowMixes rupees billed with rupees spent. Use CM1 LTV.
- Mismatched cohortsLast year's LTV over this month's CAC compares two different groups of customers.
- Using blended CACRepeat buyers make blended CAC cheap and the ratio rosy.
- Treating 3:1 as a lawIt's a rule of thumb from businesses with very different cost structures.
- Ignoring the time to collectA good ratio collected over 12 months can still run you out of cash. Pair it with payback.
Frequently asked questions
Is 3:1 a good LTV:CAC ratio?
Only if you know how it was built. 3:1 on 365-day revenue can be close to break-even on margin. On CM1 over 180 days, 3:1 would be exceptional for most D2C brands.
Should I use blended or new customer CAC?
New customer CAC. LTV is measured on newly acquired customers, so the cost side should be what it cost to acquire them.
Can LTV:CAC be too high?
Yes. A ratio far above your target, with flat growth, usually means you could profitably spend more to acquire customers and are leaving growth on the table.
How is it different from ROAS?
ROAS looks at revenue from one order or one window per rupee of ad spend. LTV:CAC looks at a customer's value over time per rupee it took to acquire them, including repeat purchases.
Related metrics
Unit economics you can actually spend against
BooleanMaths pairs each cohort's CM1 LTV with its new customer CAC, so LTV:CAC is measured on the same customers, by channel and campaign.
LTV:CAC ratio
How many rupees a customer gives back for every rupee spent acquiring them. Built on margin and a fixed window it's one of the most useful numbers in D2C. Built on revenue over a long window, it can make a loss-making business look healthy.
Both from the same acquisition cohort. On a CM1 basis, 1.0 is break-even. Don't use CM2 here: it already deducts ad spend, so CAC would be counted twice.
What is LTV:CAC?
LTV:CAC puts the two halves of customer economics side by side: what a customer is worth, and what they cost to win. A ratio of 2:1 means every rupee of acquisition spend comes back as two rupees of value.
Whether that "value" is real depends on how the LTV was built. If it's contribution margin over a window you can wait for, the ratio tells you something true about profitability. If it's revenue over a year or more, it mostly tells you how big the numerator was allowed to get.
How it's calculated
Pick one acquisition cohort, say everyone whose first order was in March. Take that cohort's CM1 LTV at your chosen window, and divide by what it cost to acquire them.
| Input | Source and range | What it gives us |
|---|---|---|
| cm1_ltv | Cohort CM1 within N days of first order ÷ cohort size | Numerator |
| acquisition_spend | Paid spend in the cohort's acquisition month | Part of the denominator |
| new_customers | First-time buyers in that month, delivered orders only | New customer CAC = spend ÷ new customers |
Why "3:1" doesn't travel
3:1 is quoted as a universal target, but it only means something once three choices are pinned down. Change any one and the same business moves above or below the line.
- 1Revenue or margin?At a 38% margin, a revenue-based ratio is about 2.6x the margin-based one for the same customers.
- 2Which window?A 365-day LTV is bigger than a 180-day one, but you wait a year to collect it.
- 3Which CAC?Blended CAC can be well below new customer CAC, inflating the ratio further.
Worked examples
Example 1: One cohort, four ratios
An illustrative cohort acquired at a new customer CAC of ₹570, with a 38% CM1 margin.
| LTV basis | Window | LTV | nCAC | LTV:CAC |
|---|---|---|---|---|
| Revenue | 180 days | ₹1,860 | ₹570 | 3.3:1 |
| Revenue | 365 days | ₹2,400 | ₹570 | 4.2:1 |
| CM1 | 180 days | ₹707 | ₹570 | 1.2:1 |
| CM1 | 365 days | ₹912 | ₹570 | 1.6:1 |
- 4.2:1Clears the "3:1" bar comfortably. It's also the least useful number on the page for deciding spend.
- 1.2:1Each customer leaves ₹137 after acquisition cost within six months (₹707 − ₹570). Profitable, but thin, and every rupee of operational cost still has to come out of it.
- TakeawayPushing nCAC up 20% to ₹684 would bring the 180-day CM1 ratio to roughly 1.0. The revenue ratio would still read 3.5:1.
Example 2: The cheaper channel isn't the better one
Two illustrative acquisition channels, compared on 180-day CM1 LTV.
Using LTV:CAC to decide
These ranges assume CM1 LTV over a fixed window (180 days is a common choice) and new customer CAC. They're starting points: brands with high operational costs need more headroom.
Common mistakes
- Revenue on top, CAC belowMixes rupees billed with rupees spent. Use CM1 LTV.
- Mismatched cohortsLast year's LTV over this month's CAC compares two different groups of customers.
- Using blended CACRepeat buyers make blended CAC cheap and the ratio rosy.
- Treating 3:1 as a lawIt's a rule of thumb from businesses with very different cost structures.
- Ignoring the time to collectA good ratio collected over 12 months can still run you out of cash. Pair it with payback.
Frequently asked questions
Is 3:1 a good LTV:CAC ratio?
Only if you know how it was built. 3:1 on 365-day revenue can be close to break-even on margin. On CM1 over 180 days, 3:1 would be exceptional for most D2C brands.
Should I use blended or new customer CAC?
New customer CAC. LTV is measured on newly acquired customers, so the cost side should be what it cost to acquire them.
Can LTV:CAC be too high?
Yes. A ratio far above your target, with flat growth, usually means you could profitably spend more to acquire customers and are leaving growth on the table.
How is it different from ROAS?
ROAS looks at revenue from one order or one window per rupee of ad spend. LTV:CAC looks at a customer's value over time per rupee it took to acquire them, including repeat purchases.
Related metrics
Unit economics you can actually spend against
BooleanMaths pairs each cohort's CM1 LTV with its new customer CAC, so LTV:CAC is measured on the same customers, by channel and campaign.