Divide gross-profit LTV by customer acquisition cost, then compare the ratio with a target and the highest CAC that target still allows.
What LTV:CAC compares
The ratio places one customer’s estimated lifetime gross profit next to the cost of winning that customer. A result above 1× means LTV is larger than CAC. Fixed costs, cash timing, and forecast error still sit outside the ratio.
LTV:CAC = gross-profit LTV ÷ CAC Gross-profit surplus = LTV − CAC Maximum CAC at the target = LTV ÷ target ratio Gap to the target = actual ratio − target ratio
Example
The default LTV and CAC on the English lifetime-value and acquisition-cost pages are $384 and $200. That is a 1.92× ratio and a $184 surplus. At a 3× target, the highest CAC the same LTV can support is $128, so the ratio is 1.08× below the illustration.
A 3× target is an example
Payback speed, growth stage, fixed costs, retention risk, and cash all change what a useful ratio looks like. This page lets you set the threshold. It does not claim that 3× fits every business.
Frequently asked questions
Does a ratio above 1× mean the company is profitable?
No. The model does not subtract overhead, tax, cost of capital, or forecast error, and it ignores when cash actually arrives.
What happens when CAC is $0?
The ratio is not applicable because the denominator is zero. Check whether marketing, sales, people, or tools were left out.
Can I use revenue LTV instead of gross-profit LTV?
The arithmetic still runs, but revenue overstates the cash available to cover CAC. Label the definition and keep it consistent.
Do I have to use a 3× target?
No. 3× is a common illustration, not a recommendation. Set the target from payback, risk, and the cash you can fund.