How to Calculate LTV:CAC Ratio: The Unit Economics Formula VCs Care About
The LTV:CAC ratio is the single most important unit economics metric for venture-backed startups. Here's exactly how to calculate it and what benchmarks signal a fundable business.
Quick Answer
The LTV:CAC ratio is the single most important unit economics metric for venture-backed startups. Here's exactly how to calculate it and what benchmarks signal a fundable business.
How to Calculate LTV:CAC Ratio: The Unit Economics Formula VCs Care About
The LTV:CAC ratio is the scorecard for your growth engine. It answers the most fundamental question in startup economics: for every dollar you spend acquiring a customer, how many dollars do you get back over that customer's lifetime?
VCs look at this number before almost anything else in a seed or Series A pitch. A strong LTV:CAC ratio is evidence that your business model works at the unit level — and that growth is a matter of investing more capital into a proven engine, not hoping the economics improve with scale.
What Is the LTV:CAC Ratio?
The LTV:CAC ratio compares Customer Lifetime Value (the total gross profit a customer generates) against Customer Acquisition Cost (what you spent to win that customer). It tells you the return on your customer acquisition investment.
- LTV = the economic value of a customer over their lifetime with you
- CAC = the total cost (sales, marketing, tools, headcount) to acquire one customer
- LTV:CAC = how many times over each acquisition investment pays back
The Formula
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