Key Performance Indicators Examples
LTV:CAC ratio (Customer Lifetime Value to Customer Acquisition Ratio)
The LTV:CAC ratio, also known as the Customer Lifetime Value to Customer Acquisition Cost ratio, is a metric used to measure the efficiency of a company’s customer acquisition strategy. It compares the lifetime value of a customer to the cost of acquiring that customer.
The formula for calculating LTV:CAC ratio is:
Lifetime Value of a Customer / Cost of Acquiring a Customer = LTV:CAC ratio
Lifetime Value (LTV) is the total amount of revenue that a customer is expected to generate for a company over the course of their lifetime. It is typically calculated by taking the average revenue per customer and multiplying it by the average customer lifespan.
Cost of Acquiring a Customer (CAC) is the total amount of money that a company spends to acquire a new customer, including expenses such as marketing, sales, and overhead.
A high LTV: CAC ratio is generally considered to be a good sign, as it means that a company is able to acquire customers at a relatively low cost and that those customers are generating a significant amount of revenue over their lifetime. A low LTV:CAC ratio may indicate that a company is spending too much money to acquire customers or that its customers have a low lifetime value.
A LTV: CAC ratio of 3 or more is considered a healthy ratio. It means for every dollar you spend on acquiring a customer, you are able to generate 3 dollars in revenue from that customer.
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