Product metrics and goals
LTV to CAC ratio
Also called LTV:CAC
How much a customer is worth compared with what it cost to win them. Around 3 to 1 or better is the common target.
How it's worked out
Customer lifetime value ÷ customer acquisition cost
Below 1, every new customer loses money. Well above 3 can mean the business is under-investing in growth and could spend more to win customers faster.
Read it with payback period: a high ratio that takes four years to earn back can still run a business out of cash.
In practice
Customers worth $4,100 that cost $500 to win give a ratio of about 8 to 1.
Common mistake
Using revenue instead of gross margin for LTV, which can make an unprofitable business look healthy.
Where it comes from
The 3 to 1 rule of thumb was popularised by investor David Skok's writing on SaaS metrics.