Customer acquisition cost (CAC) is acquisition spending divided by new customers in a defined period; lifetime value (LTV) is an estimate of value from a customer over a named retention period and margin assumption. A $12,000 acquisition spend that brings 100 customers has $120 CAC, while $500 of revenue at a 60.00% gross margin gives $300 gross-margin LTV before retention uncertainty.
What cac vs ltv means
CAC measures spending required to acquire one customer, while LTV estimates the value one customer produces during a stated customer relationship. CAC asks what it cost to obtain a customer; LTV asks what that customer is expected to contribute over a defined time. The ratio connects them only when both definitions are explicit.
| Acquisition spend | $12,000 |
|---|---|
| New customers | 100 |
| CAC | $120 |
| Gross-margin LTV | $300 |
| LTV:CAC | 2.50:1 |
CAC vs. LTV: how should customer acquisition cost be compared with value?: worked example
A subscription business spends $12,000 on acquisition in April and records 100 new customers, producing $120 CAC. If an average retained customer is expected to produce $500 of revenue before cancellation and the documented gross margin is 60.00%, the illustrated gross-margin LTV is $300. The simple LTV:CAC ratio is 2.50:1: $300 divided by $120. It is not 4.17:1, which would compare revenue LTV with CAC and ignore the margin assumption.
How to calculate cac vs ltv
CAC = acquisition spend divided by new customers acquired under the same definition. State the cohort, revenue period, gross-margin treatment, cancellation assumption, and whether sales compensation is included before calculating LTV:CAC. Compare like-for-like dollar measures, not one revenue measure and one profit measure.
Use the relevant inputs with these related Calculatort pages: customer acquisition cost · customer lifetime value · break-even analysis.
Check the cac vs ltv inputs before deciding
customer cohort review 1. A customer cohort record reads cac at $120 with gross-margin ltv at $300, then asks whether the retention curve uses the same period and unit. The gross-profit cohort is the evidence that turns this illustration into a decision record: it can confirm the input, expose an omitted cost or rule, or show that the comparison does not apply. Keep the customer cohort evidence with the retention curve record before revising this result.
retention curve review 2. A retention curve record reads gross-margin ltv at $300 with ltv:cac at 2.50:1, then asks whether the gross-profit cohort uses the same period and unit. The sales commission is the evidence that turns this illustration into a decision record: it can confirm the input, expose an omitted cost or rule, or show that the comparison does not apply. Keep the retention curve evidence with the gross-profit cohort record before revising this result.
gross-profit cohort review 3. A gross-profit cohort record reads ltv:cac at 2.50:1 with acquisition spend at $12,000, then asks whether the sales commission uses the same period and unit. The payback month is the evidence that turns this illustration into a decision record: it can confirm the input, expose an omitted cost or rule, or show that the comparison does not apply. Keep the gross-profit cohort evidence with the sales commission record before revising this result.
sales commission review 4. A sales commission record reads acquisition spend at $12,000 with new customers at 100, then asks whether the payback month uses the same period and unit. The churn evidence is the evidence that turns this illustration into a decision record: it can confirm the input, expose an omitted cost or rule, or show that the comparison does not apply. Keep the sales commission evidence with the payback month record before revising this result.
payback month review 5. A payback month record reads new customers at 100 with cac at $120, then asks whether the churn evidence uses the same period and unit. The first order is the evidence that turns this illustration into a decision record: it can confirm the input, expose an omitted cost or rule, or show that the comparison does not apply. Keep the payback month evidence with the churn evidence record before revising this result.
churn evidence review 6. A churn evidence record reads cac at $120 with gross-margin ltv at $300, then asks whether the first order uses the same period and unit. The repeat frequency is the evidence that turns this illustration into a decision record: it can confirm the input, expose an omitted cost or rule, or show that the comparison does not apply. Keep the churn evidence evidence with the first order record before revising this result.
first order review 7. A first order record reads gross-margin ltv at $300 with ltv:cac at 2.50:1, then asks whether the repeat frequency uses the same period and unit. The service expense is the evidence that turns this illustration into a decision record: it can confirm the input, expose an omitted cost or rule, or show that the comparison does not apply. Keep the first order evidence with the repeat frequency record before revising this result.
repeat frequency review 8. A repeat frequency record reads ltv:cac at 2.50:1 with acquisition spend at $12,000, then asks whether the service expense uses the same period and unit. The cohort age is the evidence that turns this illustration into a decision record: it can confirm the input, expose an omitted cost or rule, or show that the comparison does not apply. Keep the repeat frequency evidence with the service expense record before revising this result.
service expense review 9. A service expense record reads acquisition spend at $12,000 with new customers at 100, then asks whether the cohort age uses the same period and unit. The acquisition channel is the evidence that turns this illustration into a decision record: it can confirm the input, expose an omitted cost or rule, or show that the comparison does not apply. Keep the service expense evidence with the cohort age record before revising this result.
cohort age review 10. A cohort age record reads new customers at 100 with cac at $120, then asks whether the acquisition channel uses the same period and unit. The lifetime horizon is the evidence that turns this illustration into a decision record: it can confirm the input, expose an omitted cost or rule, or show that the comparison does not apply. Keep the cohort age evidence with the acquisition channel record before revising this result.
acquisition channel review 11. A acquisition channel record reads cac at $120 with gross-margin ltv at $300, then asks whether the lifetime horizon uses the same period and unit. The customer cohort is the evidence that turns this illustration into a decision record: it can confirm the input, expose an omitted cost or rule, or show that the comparison does not apply. Keep the acquisition channel evidence with the lifetime horizon record before revising this result.
lifetime horizon review 12. A lifetime horizon record reads gross-margin ltv at $300 with ltv:cac at 2.50:1, then asks whether the customer cohort uses the same period and unit. The retention curve is the evidence that turns this illustration into a decision record: it can confirm the input, expose an omitted cost or rule, or show that the comparison does not apply. Keep the lifetime horizon evidence with the customer cohort record before revising this result.
Common mistakes
Do not use all historical marketing cost with one month's customers, treat sign-ups as paying customers, use revenue LTV beside gross-profit CAC, or project a lifetime from a cohort that has not had time to mature.
Where this calculation stops
Retention, refunds, churn, cohort mix, payment timing, contribution margin, support cost, and attribution rules can change LTV. The calculation is an operating hypothesis, not a valuation or guarantee.
Source and verification
The U.S. Small Business Administration's finance guidance emphasizes records and financial statements; those records are the source for the period, margin, and customer counts needed for a reproducible CAC and LTV comparison. Read the named source. Verify the source date and the controlling statement, agreement, payroll record, or accounting record before relying on the illustrated result.