CLV:CAC – CLV:CAC Ratio

Definition

The CLV:CAC Ratio relates Customer Lifetime Value to Customer Acquisition Costs. It answers the fundamental question: How much value does a customer generate compared to what their acquisition costs? A ratio of 3:1 is considered healthy – every acquisition euro invested returns €3 long-term. Below 1:1, the company loses money on every new customer.

Formula

Example

An e-commerce company has a CLV of €300 and a CAC of €75. The CLV:CAC ratio is 300 / 75 = 4:1. This means: every acquisition euro invested generates €4 in long-term customer value. For SaaS companies, the ideal ratio is 3:1 to 5:1.

Interpretation

Below 1:1: Unprofitable, each customer costs more than they generate. 1:1 to 3:1: Marginal, little room for growth. 3:1 to 5:1: Healthy, sustainable growth possible. Above 5:1: Potentially underinvesting in growth.

Optimization Tips

Increase CLV through upselling, cross-selling, and improved retention. Lower CAC through more efficient channels and better conversion rates. Use referral programs for cheaper customer acquisition. Focus marketing on the most profitable customer segments.