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.
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.