The two halves of unit economics. CAC is what you spend to win a customer. LTV is what they return over their lifetime. The ratio helps assess acquisition economics; payback and cash needs matter too.
Last updated: 2026-04-01
Total acquisition-related sales and marketing spend over a period, divided by the number of customers acquired. Match the spending period to the sales cycle.
Best as a watching metric for any business that pays to acquire customers. Useful as both a topline number and a per-channel breakdown.
The total gross profit a customer is expected to generate before they churn. A simple estimate uses monthly ARPU multiplied by gross margin, divided by monthly churn rate. The SaaS targets on this page come from Bessemer's 2021 guidance; they are operating guidelines by segment.
Best as a planning metric. Compare LTV with CAC, payback time, and the overhead the business must cover.
CAC = (Sales and marketing spend) / (New customers acquired)A defensible CAC includes paid media, sales salaries, BDR/SDR comp, marketing tools, and a slice of overhead. Organic-only CAC is a different metric.
LTV = (ARPU x Gross margin %) / Monthly churn rateARPU is average revenue per user per month. Gross margin reflects what's left after cost of revenue. Use customer churn and decimal rates, such as 0.02 for 2%. This simple estimate assumes stable revenue, margin, and churn.
| Criteria | CAC | LTV |
|---|---|---|
| What it measures | Cost to acquire one customer | Margin one customer returns over their lifetime |
| Time direction | Backward-looking. Reflects past spend | Forward-looking. Estimates lifetime gross profit |
| Inputs | Sales and marketing spend, new customer count | ARPU, gross margin, churn rate |
| Volatility | Can change with spending, sales timing, and conversion rates | High. Sensitive to churn assumptions |
| Best break-down | By channel | By customer segment or plan tier |
| Healthy benchmark | Compare with gross-profit LTV; 3:1 is a common SaaS guideline | No standalone benchmark. Always paired with CAC |
| Common mistake | Using only paid media spend, leaving out sales | Using revenue instead of gross margin |
| Pairs with | CAC payback period | Churn rate, retention curves |
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Use your own inputs to explore the calculations and compare results.
Bessemer's 2021 SaaS guidance uses 3:1 or higher as a target for gross-margin-adjusted LTV:CAC. Treat it as an operating guideline, not a universal pass mark. A ratio below 1 means estimated lifetime gross profit does not cover acquisition cost; a higher ratio still has to cover overhead.
For comparison with CAC, use lifetime gross profit. Multiply revenue by gross margin to account for the cost of serving customers. Label a revenue-only estimate clearly so readers do not mistake it for profit.
LTV:CAC compares estimated lifetime value with acquisition cost. CAC payback estimates how many months of gross profit it takes to recover that cost. Bessemer's 2021 targets are under 12 months for SMB, 18 for mid-market, and 24 for enterprise SaaS.
No. Compare channel CAC alongside customer retention, lifetime value, payback, and how costs change as you scale. Blended CAC shows overall acquisition efficiency; channel CAC alone does not decide where the next dollar should go.
Use a range based on explicit best, base, and worst churn assumptions. Compare those estimates with observed cohort revenue and gross profit. A range makes uncertainty visible but does not make unstable churn a reliable forecast.
Payback can be useful when you lack enough retention history for LTV. It needs CAC and monthly gross profit per customer. Recovering acquisition cost is not the same as overall profitability, and the estimate still depends on customers staying long enough to pay it back.