CAC and LTV: the two metrics that drive sustainable business growth

Executive overview

Most businesses track too many metrics and optimise the wrong things. Two numbers determine whether a business is profitable: CAC (cost of acquiring a customer) and LTV (lifetime value of a customer).

A profitable business acquires customers for less than they spend over their lifetime. Both metrics must be tracked over time, broken down by channel and segment, and actively optimised.

Low CAC and high LTV is the formula for a sustainable, profitable business.

Understanding CAC

• CAC = total marketing spend ÷ number of customers acquired in that period.
• Include all costs: advertising, influencer fees, PR, vendor costs, campaign spend.
• Track CAC per channel (e.g. Facebook vs. Google) to see where budget works hardest.
• Track trend lines over time to identify periods to scale up or pull back.
• CAC has risen over 60% in the last five years and will continue to climb.
• B2B and high-ticket businesses carry a higher CAC than low-price e-commerce by default.

Understanding LTV

• LTV = how much a customer spends, multiplied by how frequently and how long they buy.
• High LTV signals that customers are retained and satisfied with the product.
• Segment customers by LTV to build high-value acquisition avatars for ad targeting.
• Use LTV segments to tell ad platforms (Facebook, Google) to find more customers like your best ones.
• Subscription businesses have structurally high LTV due to recurring revenue.
• Levers to increase LTV: new products, pricing tests, upgrade/downgrade options, improving the core experience.

How CAC and LTV work together

• The two metrics are interdependent — optimise them in parallel, not in isolation.
• Spotify example: acquire users free (near-zero CAC), then convert to paid plans to drive LTV.
• Amazon example: trust, variety, and delivery reliability keep customers returning — compounding LTV over time.
• The goal is always: lower the CAC, raise the LTV.