What is the LTV:CAC ratio and what is healthy?

Full Explanation

If LTV is £35K and CAC is £8K, the ratio is 4.4:1, meaning for every pound spent on acquisition, the company expects £4.40 in lifetime profit. A 3:1 ratio is the minimum acceptable threshold for sustainable unit economics. Below 3:1, the company is spending too much to acquire customers relative to lifetime value. Ratios above 5:1 indicate exceptional unit economics and suggest the company can profitably increase marketing spend to accelerate growth. The ratio helps founders and investors assess whether growth is sustainable: a company growing 50% monthly but with a 1:1 LTV:CAC ratio is not viable — it is burning capital on unprofitable customer acquisition. Conversely, a company growing 10% monthly with a 5:1 ratio can sustain that growth indefinitely. Different business models have different expectations: self-serve SaaS typically targets 5:1+; enterprise sales might target 3:1; consumer apps might target 2:1. The industry context matters, but 3:1 is a universal minimum. Most investors will flag a company with LTV:CAC below 3:1 as a major risk.

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