LTV:CAC is a crucial eCommerce metric to track. It is the direct relationship between customer LTV and the cost to acquire a customer; it shows how much you make (and keep) per customer, compared to how much you’re spending to acquire each customer. For example, if your LTV:CAC is 1.0, that means that the amount you make per customer is equal to how much you’re spending to acquire each customer. If your LTV:CAC is 2.0, that means that your LTV is double your CAC, and so on.
Here’s Daasity Co-Founder and Chief Analytics Officer, Sean Corson, to break down LTV:CAC further:
What is a good LTV:CAC?
The answer to this depends not only on your area of eCommerce, but your company in particular. In most situations, you will want to see an LTV:CAC (at absolute minimum) above 1.0 because anything below 1.0 means that you are losing money on every customer. A common benchmark is to achieve a 3.0 LTV:CAC, and this is a common number that venture capitalists or other investors want to see, but this also may be higher or lower depending on your industry and how long your company has been around. Ideally, your LTV:CAC should improve over time.