Customer lifetime value : Customer acquisition cost (CLTV : CAC Ratio)

Customer lifetime value : Customer acquisition cost (CLTV : CAC Ratio)

Definition

The ratio between CLTV and CAC is used in subscription based industries to determine how profitable a customer will be over their lifetime associated with a business.

How is Customer lifetime value : Customer acquisition cost (CLTV : CAC Ratio) calculated?

The formula for calculating Customer lifetime value : Customer acquisition cost (CLTV : CAC Ratio) is:CLTV : CAC Ratio = Customer Lifetime Value (CLTV) ÷ Customer Acquisition Cost (CAC)

Example:

A customer that you have acquired is expected to have a customer lifetime value (CLTV) of \$500, the Customer Acquisition Cost for this customer was \$100. This gives you a ratio of 5:1.

What's a good CLTV:CAC Ratio?

In general, the higher a company's CLTV:CAC ratio, the better. This means that the company's customers are more valuable than its cost to acquire them. If the ratio is negative then it suggests that your business is running at a loss to acquire new customers. It's important to note that this ratio is not always indicative of a successful business. A good CLTV:CAC Ratio is considered to be 3 or above.

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