LTV to CAC Ratio

Read what a customer pays and what they cost to acquire separately and neither tells you which channel deserves more money. Each figure looks good or bad on its own and neither settles the question.

Ravi weighed two channels at Pagedeck. Channel A brought a customer in for $31 and channel B cost $69. On acquisition cost alone A was more than twice as cheap, so moving budget there looked right.

Retention records told a different story. Customers from A left after about six months, leaving $92 behind; customers from B stayed 16 months and left $246. As ratios that is 3 for A and 3.6 for B.

Divide lifetime value by customer acquisition cost. A customer worth $210 acquired for $54 gives about four. The result is a multiple, not a percentage. Three things get aligned before dividing.

1. Align the basis of both figures. If one side is this quarter and the other is last year's average, the ratio means nothing — a mismatched ratio is not a smaller number, it is a meaningless one.
2. Decide what goes into acquisition cost. Ad spend alone and ad spend plus salaries and tooling commonly differ by a factor of two, so pick one and stop changing it.
3. Calculate it per channel. A single blended average lets a good channel cover for a bad one, which is exactly what A and B above would have done.

Three is the conventional line. Below one, every additional sale piles up losses; above three, the budget is generally worth raising. A long payback period still means a healthy ratio without the cash on hand for the next customer.

A very high number is also a signal. At ten, the likely reading is that money which could be spent on acquisition is being left on the table, and raising the budget until the ratio settles toward three grows total profit.

"A is cheaper, but B wins on the ratio."

Looking at acquisition cost alone flips the judgment the wrong way.

"The ratio is 1.8, so no, we're not raising the budget."

Scaling below the line only enlarges the loss.

"Check whether that CAC includes salaries before comparing."

Stopping two different values from sharing one name.

At Pagedeck, Ravi records this ratio per channel every month and Grace reviews the whole picture quarterly. Grace also reads unit economics, which asks what one customer leaves after all costs. The ratio says whether to scale advertising; that says whether the product itself makes money. They get read in that order, since scaling a product that does not make money only loses money faster.