Compare customer lifetime value against acquisition cost to get your LTV:CAC ratio - the health check for whether growth is sustainable. Free, client-side.
LTV:CAC = Lifetime value ÷ Customer acquisition cost
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The LTV:CAC ratio compares how much a customer is worth over their lifetime (LTV) to what it costs to acquire them (CAC). It's the clearest single gauge of whether your growth is healthy. A widely used rule of thumb is 3:1 - earn about three times what you spend to acquire. Too low and you're buying unprofitable customers; far too high can mean you're under-investing in growth.
Around 3:1 is the common benchmark for a healthy business - roughly three dollars of lifetime value for every dollar spent acquiring the customer. Below about 1:1 you lose money on each customer; well above 4-5:1 you may be leaving growth on the table by under-spending.
A simple version is average order value × purchase frequency × customer lifespan, adjusted for gross margin. Keep it honest - use contribution margin, not revenue - so the ratio reflects real profit, not top-line.
Improve conversion rate so the same ad spend yields more customers, lean into the channels with the best LTV:CAC, and grow lower-cost sources like organic and referral. Knowing CAC by source is essential - Clicked ties revenue back to the source that earned it.
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