What Is the Difference Between CAC and LTV?

CAC (customer acquisition cost) is how much you spend to win one new customer. LTV (customer lifetime value) is how much revenue or profit that customer brings over the whole relationship. Comparing the two shows whether your marketing is profitable.

CAC tells you what you pay, and LTV tells you what you get back. A business grows healthily when LTV is comfortably higher than CAC.

What Is CAC?

CAC measures the cost of acquiring a customer.

Formula:

• CAC = total sales and marketing spend ÷ number of new customers

Example:

• If you spend ₹1,00,000 and win 50 customers, CAC is ₹2,000

What Is LTV?

LTV estimates the total value of a customer over time.

A simple formula:

• LTV = average order value × purchases per year × years the customer stays

Many businesses use gross profit, not revenue, to get a more realistic figure.

Example:

• If a customer spends ₹1,500 per order, buys 4 times a year, and stays 3 years, LTV is ₹18,000

How Do CAC and LTV Work Together?

The LTV to CAC ratio shows the health of your marketing.

Key points:

• A commonly used benchmark is an LTV to CAC ratio of about 3 to 1
• A much lower ratio can mean you are overspending
• A much higher ratio may mean you could invest more in growth
• Also track CAC payback time, which is how long it takes to earn back the cost
• Improve the ratio by lowering CAC or raising LTV through retention and upselling

Conclusion

CAC shows what you pay to win customers, and LTV shows what they are worth. Track both together to decide how much you can afford to spend on marketing.