Lifetime value divided by customer acquisition cost — the return earned on customer acquisition investment, the fundamental unit economics test for subscription businesses.
Deeper Explanation
A LTV/CAC ratio above 3x means the business earns at least ₹3 for every ₹1 spent acquiring a customer — the conventional threshold for a healthy subscription model. Below 1x means the business is destroying value on every customer it acquires, regardless of revenue growth. Ratios above 10x suggest extraordinary pricing power or viral growth — the business barely needs to spend to acquire customers. The payback period (how many months until CAC is recovered) is equally important: a business with a 3x LTV/CAC but a 48-month payback is capital-intensive and slow to compound.
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