What is LTV:CAC and what's a good ratio
LTV:CAC compares the lifetime value of a customer to the cost of acquiring them. The widely used benchmark is 3:1: a customer should be worth about three times what you pay to win them. Under 1:1 you lose money on every customer; 1–3:1 is profitable but thin; 3–5:1 is healthy; above 5:1 usually means you're leaving growth on the table and could afford to spend more.
Why revenue LTV lies — use gross-margin LTV
Most calculators report revenue LTV (AOV × lifetime orders). That number ignores COGS, fees, and shipping, so it dramatically overstates what a customer is worth. We lead with gross-margin LTV — revenue LTV multiplied by your contribution margin — because that's the money you actually keep to pay back acquisition cost. Judging CAC against revenue LTV flatters almost any store; judging it against gross-margin LTV is honest.
Gross-margin LTV = AOV × orders per lifetime × contribution margin
CAC payback period explained
Payback period is the number of months it takes a customer's margin to repay their CAC: CAC ÷ monthly contribution margin. It's a cash-flow metric, not a profitability one — two brands with identical LTV:CAC can have wildly different paybacks. The longer the payback, the more growth you finance up front, which is why fast-growing brands with long paybacks can run out of cash even while looking profitable on paper.
First-order vs lifetime profitability
This is the reveal ROAS can't show you. A customer can have a great lifetime ratio while you lose money on the very first order. If your first-order margin is below your CAC, you only get whole again on a later order — order two, three, or beyond. The cumulative-margin chart above plots exactly when that crossover happens, so you know how dependent your economics are on repeat purchases.
How much can you afford to spend to acquire a customer
Your maximum allowable CAC is your gross-margin LTV divided by your target ratio. At a 3:1 target, a customer worth $180 in margin supports a CAC of up to $60. Use this ceiling to set bid caps and channel budgets — if a channel's blended CAC creeps above it, your ratio is slipping below target.
Frequently asked questions
- What is a good LTV:CAC ratio?
- The common benchmark is 3:1 — a customer's gross-margin lifetime value should be about three times what you spend to acquire them. Below 1:1 you lose money on every customer. Between 1:1 and 3:1 you're profitable but thin, with little room to scale on paid. Around 3:1 to 5:1 is healthy. Above 5:1 often means you're underinvesting in growth and could afford to acquire more aggressively.
- Why should I use gross-margin LTV instead of revenue LTV?
- Revenue LTV (AOV × lifetime orders) ignores the cost of delivering those orders, so it massively overstates a customer's real worth. Gross-margin LTV multiplies by your contribution margin to reflect what you actually keep. Comparing CAC to revenue LTV makes almost any business look healthy; comparing it to gross-margin LTV tells the truth.
- What is CAC payback period?
- CAC payback period is how many months it takes for the contribution margin from a customer to repay what you spent to acquire them. It equals CAC ÷ monthly contribution margin. Under 3 months is excellent, 3–6 is fine, 6–12 means you should watch cash flow, and beyond 12 months is risky for most ecommerce brands because you finance growth for a long time before recouping cost.
- What's the difference between first-order and lifetime profitability?
- First-order profitability asks whether a single purchase covers its acquisition cost (first-order margin minus CAC). Lifetime profitability asks whether the customer pays off across all their repeat orders. You can be healthy over a lifetime while losing money on order one — the gap is bridged only by repeat purchases, which is exactly the risk ROAS hides.
- How much can I afford to spend to acquire a customer?
- Divide your gross-margin LTV by your target ratio. For a 3:1 target and a $180 gross-margin LTV, your maximum allowable CAC is $60. Spend more than that and you fall below your target ratio. This calculator computes your max allowable CAC automatically as you change inputs.
- Is this calculator free?
- Yes — free forever, no signup, no email. Every calculation runs entirely in your browser, so your numbers never leave your device.
Want help getting your CAC payback under control?
Get in touchEstimates based on the averages you enter — not financial advice. Real LTV varies by cohort; revisit with your actual repeat-purchase data.