LTV-to-CAC ratio

The LTV-to-CAC ratio divides customer lifetime value by the cost of acquiring a new customer. It compares value over the customer relationship with initial acquisition cost. CFI's illustrated formula uses contribution after direct costs for LTV and warns that fixed costs, changing retention and changing acquisition costs require further analysis.[1] Revenue LTV produces a different interpretation from margin LTV.

For a store, align the customer group, currency and cost definitions, and document the assumed relationship horizon. Do not present realised and forecast value as equally certain. An attractive ratio does not say when cash returns or how much inventory needs financing first. Avoid a universal target without context, and do not deduct acquisition costs again if the chosen LTV already includes them.