What does a customer cost you — and what do they bring back

CAC (customer acquisition cost) is what you pay to win one new customer: total marketing and sales spend for a period divided by the number of new customers it brought. LTV (lifetime value) is the profit one customer generates over their whole relationship with you: average order value × purchases per year × years of loyalty × profit margin.

Neither number means much alone. A 50 CAC is great if a customer returns 500 over three years — and a disaster if they buy once for 60 with a 30% margin. The ratio between them is the real health metric.

Below 1 you are literally buying customers at a loss. Between 1 and 3 you are technically profitable, but one CPM spike, one churn wave or one discount season erases the margin. From 3 upward the economics can absorb shocks and still fund growth.

Payback period matters just as much: it shows how many months of a customer’s profit it takes to recover their acquisition cost. Even with a great ratio, an 18-month payback means your growth is financed from your own pocket for a year and a half.