LTV/CAC Analysis Guide: Customer Lifetime Value and Acquisition Cost

LTV (Lifetime Value) and CAC (Customer Acquisition Cost) are two of the most critical metrics for evaluating digital assets, especially SaaS and subscription businesses. LTV represents the total revenue a customer generates over their lifetime, while CAC is the cost to acquire that customer. A healthy LTV:CAC ratio is typically 3:1 or higher, meaning each customer generates at least 3x their acquisition cost. This guide covers: how to calculate LTV (gross, net, cohort analysis), how to calculate CAC (marketing spend, sales costs, attribution), how to improve LTV (retention, upsells, pricing), how to reduce CAC (channels, optimization, automation), industry benchmarks by sector, red flags and warning signs, and how to use LTV/CAC in valuation. We include calculation templates, analysis frameworks, optimization strategies, and real case studies from successful businesses.