Why LTV:CAC Is the #1 Unit Economics Metric
CAC tells you the cost. LTV tells you the return. The ratio tells you whether the business model is viable. A SaaS company with a 1:1 ratio is running a zero-margin acquisition machine — after delivery costs, it's destroying value with every new customer.
Investors use LTV:CAC to answer one question in diligence: "If we give you growth capital, will deploying it create or destroy value?" Below 3:1, the answer is uncertain. Above 5:1, they want to know why you're not growing faster.
3:1
Minimum ratio Series A investors expect
5:1
World-class — may indicate under-investment
12 mo
Target payback for SMB SaaS
24 mo
Acceptable payback for enterprise SaaS
Payback Period vs LTV:CAC — Which to Optimise?
LTV:CAC measures profitability over the customer's lifetime. Payback period measures how quickly you recoup CAC. Both matter, but for different reasons.
Early-stage companies on tight cash should optimise payback period — faster payback means less working capital needed to fund growth. Later-stage companies with strong balance sheets should optimise LTV:CAC to maximise enterprise value.