LTV/CAC Ratio
Lifetime value divided by acquisition cost — the headline test of whether growth is economically sound.
The LTV/CAC ratio compares what a customer is worth against what they cost to acquire. Below 1 the business loses money on every customer. Around 3 is generally healthy.
A very high ratio is not automatically good. Above 5 often means underinvestment in growth — the company could profitably acquire far more customers and is not doing so.
Both inputs must come from the same cohort and time window. Mixing this quarter's CAC with a lifetime value derived from older, cheaper customers produces a flattering number that will not survive diligence.