Skip to main content

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.

Frequently asked questions

Have another question? Reach out to our retention expert team.

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.

Related terms

Get started today...

  • Step 1

    Create your free Upzelo account and connect your subscription billing data in just a matter of minutes. Invite teammates to help connect accounts with ease.

    Create account button on an example signup screen
  • Step 2

    Obtain real-time subscription analytics, insights and benchmarks. Set up alerts to notify you via email or Slack when a particular event takes place.

    Subscription analytics overview with KPIs for MRR, Active customers and a partially hidden bar chart showing breakdown of MRR
  • Step 3

    Segment your customers into audiences, create surveys, build offers and deliver fully-branded customer flow experiences that increase retention.

    Example of a cancellation flow with Audience at the top, leading to a Bi-monthly billing survey, 10% off next bill and finishing with a Confirmation message