The relationship between the lifetime value of a customer and the cost to acquire them. It measures the ROI of sales and marketing efforts.
Why it matters: A 3:1 ratio is generally considered the benchmark for a healthy SaaS business. Less than 1:1 means you lose money on every customer. Higher than 5:1 might mean you are under-investing in growth.
In practice: If your LTV is $3,000 and your CAC is $1,000, your LTV:CAC ratio is 3:1.