CAC vs LTV: What's the Difference?

CAC (Customer Acquisition Cost) is the fully-loaded cost of turning a stranger into a paying customer - ad spend, plus sales time, plus any tools or commissions involved, divided by the number of new customers in a given period.

LTV (Lifetime Value) is the total revenue (or gross profit, in the more useful version of this metric) a customer generates over the entire time they stay a customer - not just their first purchase.

Neither number is meaningful in isolation. A high CAC can still be a good investment if LTV is high enough and payback happens fast; a low CAC can be a bad one if those customers churn before they've covered what it cost to acquire them. The number that actually matters is the LTV:CAC ratio - a commonly cited healthy benchmark is 3:1 or higher, though the right ratio depends heavily on payback period and how the business is funded. A business chasing growth with a 1:1 ratio is buying customers at cost, not building a sustainable acquisition channel.