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What is LTV/CAC ratio?

Definition, examples, and more

Definition

A key profitability metric that compares the average Lifetime Value of a user to the average Customer Acquisition Cost. A ratio of 3:1 is often cited as a healthy benchmark for sustainable growth and efficient marketing spend. But lifetime value is measured differs across apps and industries, so don't use this as a hard and fast rule

How to Calculate

LTV/CAC Ratio = Average Lifetime Value (net) / Average Customer Acquisition Cost. For example: $45 LTV / $12 CAC = 3.75x. Always use net LTV (after platform fees) for accuracy. Segment by channel: ASA LTV/CAC = $45 / $9 = 5.0x. Facebook LTV/CAC = $45 / $18 = 2.5x.

Example

A meditation app has an average LTV of $45 (net of platform fees) and a blended CAC of $12. Their LTV/CAC ratio is 3.75:1, meaning every dollar spent on acquisition returns $3.75 in lifetime revenue. Apple Search Ads has a 5:1 ratio (LTV $45 / CAC $9) while Facebook sits at 2.5:1 (LTV $45 / CAC $18) — informing where to scale spend.

Why LTV/CAC ratio Matters

LTV/CAC ratio tells you whether your growth engine creates or destroys value. A fitness app had a blended LTV/CAC of 1.5:1 — barely breaking even. They were scaling spend aggressively, losing money on every cohort. After pausing low-performing channels and focusing on high-LTV user segments, their ratio improved to 4.2:1. Only then did scaling make sense. Growing at a sub-2:1 ratio is like trying to fill a bathtub with no plug — volume does not fix the economics.

Frequently Asked Questions

What is a good LTV/CAC ratio for subscription apps?

3:1 is the commonly cited benchmark: for every $1 spent acquiring a user, you earn $3 in lifetime value. Below 2:1 is concerning (not enough margin for overhead and profit). Above 5:1 might mean you are under-investing in growth and leaving market share on the table. The sweet spot for growth-stage apps is 3:1 to 4:1.

How do I calculate LTV/CAC by acquisition channel?

Calculate channel-specific CAC (channel spend / channel subscribers) and channel-specific LTV (average lifetime revenue of users from that channel). Channels often have very different ratios — organic users typically have the best LTV/CAC (infinite, since CAC is ~$0), while some paid channels may be sub-2:1. Botsi helps track LTV by user cohort and source.

Why is LTV/CAC ratio sometimes misleading?

Three reasons: 1) LTV is a projection, not a guarantee — if retention deteriorates, your actual LTV will be lower than predicted. 2) It ignores payback period — a 4:1 ratio is useless if it takes 3 years to realize. 3) It hides cash flow dynamics — you spend CAC today but collect LTV over months/years. Always pair LTV/CAC with payback period analysis.

Category
Subscription App Terminology
Related Area
Mobile App Growth & Monetization

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