Customer value
Acquisition cost
Your figures
A simple model. True LTV is often based on profit margin rather than revenue, so treat this as a guide. Adjust the figures to reflect your own margins.
Make your marketing payWhy LTV and CAC are the most important numbers in marketing
Most marketing decisions become clearer once you know these two numbers and the relationship between them.
Customer Lifetime Value (LTV)
LTV is the total revenue a customer generates before they leave. It depends on three things: how much they spend each time, how often they buy and how long they stay. A business with a high LTV can profitably outspend competitors on acquisition, which is a durable competitive advantage. Increasing any of the three inputs, average order value, purchase frequency or retention, raises LTV.
Customer Acquisition Cost (CAC)
CAC is the total investment required to win one new customer. It should include all marketing and sales costs in a period divided by the new customers won in that period. A common mistake is to measure CAC per channel in isolation; if your Google Ads drive awareness that converts through organic search, attributing cost to only one channel understates your true CAC.
The LTV:CAC ratio
The ratio tells you how efficiently your marketing converts spend into long-term revenue. A ratio below 1:1 means you lose money on every customer. At 3:1 you are in healthy, sustainable territory. Above 5:1 often signals that you could grow faster by spending more, because you have more room to acquire customers profitably than you are currently using.
Margin vs revenue
This calculator uses revenue figures. Your real LTV is the margin you keep, not the total revenue. If your margin is 40%, a £1,200 revenue LTV translates to a £480 margin LTV. That is the figure your CAC should be compared against. Adding your gross margin percentage to the calculation gives you the most accurate picture of sustainable acquisition spend.
Frequently asked questions
What is customer lifetime value?
Customer lifetime value (LTV or CLV) is the total revenue you expect to earn from a single customer across their relationship with your business. It combines how much they spend per transaction, how often they buy and how long they stay a customer. It is one of the most important figures in any marketing decision because it tells you how much you can afford to spend to win a customer and still make a profit.
How do you calculate customer acquisition cost?
Customer acquisition cost (CAC) is the total marketing and sales spend divided by the number of new customers won in the same period. Include all relevant spend: ad budget, agency fees, tools and any sales team costs. A common mistake is to use only the ad spend, which understates the true cost and makes campaigns look more efficient than they are.
What is a good LTV to CAC ratio?
A ratio of 3:1 is often cited as a healthy benchmark: you earn three times what it costs to acquire a customer. Below 1:1 means you are losing money on every acquisition. Above 5:1 can indicate that you are growing too slowly and could afford to invest more in marketing. The right target depends on your margins and how long your payback period is.
Why does lifetime value matter for marketing?
It sets the ceiling on what you can profitably spend to win a customer. A business that knows each customer is worth £3,000 over their lifetime can justify much higher ad spend per acquisition than one that thinks purely in terms of a single sale. It also shifts focus from short-term cost-cutting to long-term retention, which is usually where the most profitable growth comes from.
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