Are You Overpaying for Customers?
Calculate your LTV:CAC ratio and find out. This is the single most important metric for sustainable growth. Know whether you're building a business or burning cash.
Lifetime Value
Acquisition Cost
Enter your metrics and click Calculate to see your LTV:CAC ratio
What is a healthy LTV:CAC ratio?
A healthy LTV:CAC ratio is 3:1 or higher, meaning each customer returns at least three dollars in gross-margin lifetime value for every dollar you spend to acquire them. Below 1:1 you lose money on every customer. Between 1:1 and 3:1 your unit economics work but leave little room to reinvest. At 5:1 and above you are usually underinvesting in growth and could afford to acquire customers faster.
Across the $30K+/month Google Ads accounts Ad Prophet analyzes, the 3:1 LTV:CAC line is the threshold where paid acquisition becomes safe to scale.
The formula
Lifetime Value (LTV)
Avg Revenue per Month x Gross Margin % x Avg Customer Lifespan (months)
Customer Acquisition Cost (CAC)
Total Marketing and Sales Spend / New Customers Acquired
Ratio
LTV / CAC
Worked example
- Avg revenue per customer per month
- $150
- Gross margin
- 70%
- Avg customer lifespan
- 24 months
- LTV
- $2,520
- Marketing spend / new customers
- $50,000 / 100
- CAC
- $500
LTV:CAC of 5.0:1 (Excellent). This business earns $5 for every $1 spent acquiring a customer and can afford to invest more aggressively in growth.
LTV:CAC ratio benchmarks
| Ratio | What it means | What to do |
|---|---|---|
| Below 1:1 | You lose money on every customer | Fix retention or CAC before spending more |
| 1:1 to 3:1 | Unit economics work but are thin | Improve gross margin or lifetime value |
| 3:1 to 5:1 | Healthy and scalable | Invest to grow |
| 5:1 and above | Likely underinvesting in growth | Spend more to acquire customers faster |
Frequently asked questions
What is a good LTV:CAC ratio?
3:1 or higher is the widely used benchmark for a healthy, scalable business. It means every dollar of acquisition spend returns at least three dollars in gross-margin lifetime value.
Is a higher LTV:CAC ratio always better?
Not necessarily. A ratio above 5:1 often signals that you are underinvesting in growth and could safely spend more to acquire customers faster and capture market share.
Should LTV use revenue or gross profit?
Use gross profit. Multiplying lifetime revenue by your gross margin gives a ratio that reflects the money you actually keep, which is the number that determines whether acquisition is profitable.
How is LTV:CAC different from CAC payback period?
LTV:CAC measures total return over a customer's lifetime. CAC payback measures how many months it takes to recover acquisition cost. A strong business wants a healthy ratio and a short payback period.
What costs should I include in CAC?
Include all fully loaded acquisition costs: ad spend, agency or platform fees, and the sales and marketing salaries tied to winning new customers.
Benchmarks and formulas last reviewed Q2 2026. Ad Prophet analyzes accounts spending $30K+/month on Google Ads.