LTV, CAC, and 3X Rule

LTV, CAC, and 3X Rule

Insight from HubSpot

Alright, let’s catch-up on the basics: 

LTV (Lifetime Value) is how much a customer's worth over their entire relationship with you. CAC (Customer Acquisition Cost) is what you spend to get them in the door. 

Divide LTV by CAC, and voila! You've got your ratio.

The generally accepted benchmark for an ideal LTV/CAC ratio is 3:1 or 3.0x. 

For every dollar you spend acquiring a customer, you should expect to get at least three back over their lifetime.

• Below 1:1? Time to sound the alarms and rethink your marketing, your business model, or both 😬

• Between 1:1 and 3:1? You're on shaky ground. You might not quite be at product-market fit.

• 3:1 to 5:1? You're in the sweet spot for scaling SaaS businesses.

• Above 5:1? You might actually be underinvesting in growth. Get spending!

Pro tip: calculate the ratio as an annual rolling average. 

It'll smooth out those seasonal hiccups and give you a clearer picture.

And, as with all benchmarks, 3:1 isn't a one-size-fits-all solution. 

Your perfect ratio depends on your growth stage, industry, and goals.