What is Customer Lifetime Value (LTV)?
Customer Lifetime Value (LTV) measures the total revenue a customer generates during their entire relationship with your company. It is typically calculated by multiplying your average monthly revenue per customer by the average customer lifetime in months.
For example, if a customer pays $5,000 per month and stays for six years, their lifetime value is $360,000.
LTV is important because it tells you how much revenue a single customer can realistically produce. Businesses with higher lifetime value can typically invest more aggressively in marketing and customer acquisition.
What is Customer Acquisition Cost (CAC / COA)?
Customer Acquisition Cost (often called CAC or COA) measures how much it costs your company to acquire a new customer. It is calculated by dividing your total annual sales and marketing costs by the number of new customers acquired during that period.
If your company spends $500,000 per year on sales and marketing and gains 12 customers, your acquisition cost is approximately $41,667 per customer.
This metric helps determine whether your marketing investment is sustainable and profitable.
What is LTV:CAC Ratio?
The LTV:CAC ratio compares the revenue generated by a customer to the cost required to acquire that customer.
In most B2B industries:
- 3:1 ratio → Healthy benchmark
- 4:1 ratio → Strong business model
- 5:1 or higher → Often indicates under-investment in marketing
If the ratio is too low, your company may be spending too much to acquire customers. If the ratio is very high, it may mean you're not investing enough in growth.
This calculator helps you understand where your company falls on that spectrum.
