Lifetime value to CAC
How much gross profit a customer produces over their life, compared with what it cost to win them.
01 What it is
Why anyone looks at this number
How much gross profit a customer produces over their life, compared with what it cost to win them.
It is the single test of whether growth is worth funding. Below about 1, every new customer destroys value; well above 3, you are probably under-investing in growth.
02 The formula
How it is worked out
Lifetime value to CAC = (average_gross_profit_per_year × expected_years) ÷ cac grain : cohort × segment unit : ratio source : CRM and billing, joined to the acquisition cost model
Use gross profit, not revenue, or you will count the cost of serving the customer as value. Cap the expected life at something defensible — infinite-life assumptions produce infinite ratios.
03 Worked example
The same number, with real inputs
| Gross profit per customer per year | €18,000 |
| Expected life | 5 years |
| CAC | €30,000 |
| Calculation | (18,000 × 5) ÷ 30,000 |
| Result | 3.0 |
Three euros of gross profit for every euro spent winning the customer. Healthy — and if retention slipped to a three-year life, it would fall to 1.8.
04 What moves it
Four things that actually change this number
Retention
The largest lever by far: a small change in churn changes life dramatically.
Gross margin
What each year is actually worth after the cost of serving.
Expansion
Growth within existing accounts extends value without extra acquisition cost.
CAC
The denominator, and the one most often measured too narrowly.
05 Where the number lives
The system, the record and the fields
| System of record | Key record | Fields you need |
|---|---|---|
| CRM and billing, joined to the acquisition cost model | Customer cohort | recurring_revenue, gross_margin, churn_rate, acquisition_cost |
Use gross profit, not revenue, or you will count the cost of serving the customer as value. Cap the expected life at something defensible — infinite-life assumptions produce infinite ratios.
06 How it goes wrong
Three ways this metric misleads people
Using revenue instead of gross profit
It inflates the ratio by whatever the cost to serve happens to be.
Fix: Always use gross profit, after support and delivery cost.Optimistic lifetimes
Assuming ten years for a product that has existed for three is not evidence.
Fix: Derive expected life from observed cohort retention, and cap it.One ratio for the whole business
Enterprise and self-serve segments have completely different economics.
Fix: Calculate by cohort and segment.08 Questions
Frequently asked
Is a higher LTV:CAC always better?
Not necessarily. A very high ratio often means you are not spending enough to grow. It is a balance test, not a score to maximise.
How do I estimate expected life?
From observed retention curves by cohort, not from a target. If your oldest cohort is three years old, do not model a ten-year life.
One definition, everywhere it is used
SCIKIQ stores this metric once and serves it to every dashboard, board pack and agent that asks.