What is the CAC to CLV Ratio? And Why's It So Important?

Learn what a healthy CAC to CLV ratio looks like and why that matters for brands in this clip from our eLearning series.

What is the CAC to CLV ratio?

The Customer Acquisition Cost to Customer Lifetime Value ratio helps brands measure the total return on investment of a customer over their entire lifetime with the brand. In general, you want a customer's lifetime value (CLV) to be 3x higher than what it costs to acquire them. Consider a SaaS company that spend $125,00 on sales and marketing in a month. This includes salaries, commissions, ad spend, trial support, etc. If 50 new customers signed up in the same month their customer acquisition cost would be $125,000/50 = $2,500.Therefore, a healthy CAC to CLV ratio for this example would mean that each customer would have to spend at least $7,500 with the SaaS company over their lifetime. 

Why does it matter?

If CAC is going up and CLV is going down then this is a major read flag. In other words, you're paying more to acquire a customer who doesn't spend as much with your company. On the other hand, if CAC is falling and CLV is rising then that's a very positive sign that you have a sticky, healthy business. In conclusion, looking at the CAC to CLV ratio you can get a good sense of how your business is performing over time.