Customer Acquisition Cost (CAC) vs Customer Lifetime Value (LTV)
CAC and LTV are two sides of the unit-economics equation. CAC tells you what it costs to land a customer; LTV tells you what that customer is ultimately worth. A healthy business needs LTV to significantly exceed CAC — the common target is LTV:CAC ≥ 3.
At a Glance
Customer Acquisition Cost (CAC)
Total sales & marketing spend divided by new customers acquired
Customer Lifetime Value (LTV)
Total revenue expected from a customer over their entire relationship
Key Differences
- CAC is a near-term cost; LTV is a long-term projection.
- CAC can be measured precisely; LTV requires assumptions about retention and margins.
- Reducing CAC improves short-term efficiency; increasing LTV improves long-term value.
- The LTV:CAC ratio combines both into a single unit-economics health score.
When to Use Each
Use Customer Acquisition Cost (CAC) when…
Use CAC to evaluate marketing and sales efficiency, compare channel ROI, and benchmark acquisition costs against industry peers.
Full Customer Acquisition Cost guide →Use Customer Lifetime Value (LTV) when…
Use LTV to set maximum acquisition budgets, prioritise high-value customer segments, and assess long-term revenue sustainability.
Full Customer Lifetime Value guide →Formulas
CUSTOMER ACQUISITION COST (CAC)
CAC = Total Sales & Marketing Spend / Number of New Customers
Total Acquisition Spend / (Organic + Paid New Customers)CUSTOMER LIFETIME VALUE (LTV)
LTV = Average Revenue Per User × Gross Margin % × Average Customer Lifespan
ARPU × Gross Margin % / Monthly Churn RateCharts
Customer Acquisition Cost (CAC)
Customer Lifetime Value (LTV)