LTV vs CAC: how to use the ratio

Plain English

CAC is what you spend to acquire a customer. LTV is the gross profit you expect from that customer over time.

Simple model

If ARPU is monthly revenue per user, gross margin is m, and monthly churn is c:

LTV ≈ (ARPU × m) ÷ c

How to use it

• LTV:CAC > 3 is often used as a sanity check (context matters).
• Payback months tells you how quickly you recover CAC from gross profit.