CAC (Customer Acquisition Cost) is the total money spent to acquire one customer. LTV (Lifetime Value) is the revenue that customer brings over the whole time they work with you. For marketing to pay off, LTV must be several times larger than CAC.
Many founders look only at lead cost. A $2 lead makes them happy, a $10 lead upsets them. But it is customers, not leads, who put money into your bank account.
In short:
- CAC = marketing + sales costs ÷ number of new customers.
- LTV = average deal size × number of purchases (or monthly payment × months).
- A cheap customer matters, not a cheap lead.
- In B2B, a filter and a proper sales process bring CAC down.
How is CAC calculated?
The formula is simple: divide marketing and sales costs for a period by the number of new customers in that period.
What goes into the costs: ad budget, agency or marketing team fees, sales managers' salaries, CRM and other tools. If you take only the ad budget, you make CAC look cheaper than it is.
For example, in the Parking24 case, $3,240 of advertising over 3 months produced 15 B2B sales. On advertising alone, each customer cost about $216. For the full CAC you add team and service costs to that.
How is LTV calculated?
For a one-time sale, LTV is the average deal size plus repeat purchases. For a subscription, it is the monthly payment multiplied by the number of months the customer stays.
For an ERP integrator, LTV is not just the first contract. Then come extra modules, support, new branches. That is why, for a company like DeepVision, the value of one customer can be much larger than the first deal.
What should the CAC to LTV ratio be?
In international practice, LTV at least three times larger than CAC is considered healthy. This is not a strict law, it is a guideline.
If the ratio is close to one, you spend more to win a customer than you earn from them. If the ratio is very large, you are probably spending too little on marketing and missing out on growth.
Why does a cheap lead turn into an expensive customer?
This is where most people go wrong. 100 leads at $0.50 look cheaper than 30 MQLs at $3. But if the first group gives one sale and the second gives five, who won?
The right way is to measure customer cost, not lead cost. We put in a form with 8–10 questions, lead cost goes up 2–5 times, but CAC goes down.
How can you reduce CAC?
In our cases, three things brought CAC down:
- Qualified leads. A form with a filter and an operator call.
- A short sales cycle. At DeepVision, retargeting with YouTube tutorials cut the "I'll think about it" period to 3 days.
- The right meeting. You do not sell over the phone, and the price is given precisely in the KP.
At one earlier IT startup the sales cycle was 20–25 days. After we rebuilt the process, it dropped to 10 days, and in 1 month $845 of advertising brought $4,000+ in sales.
Conclusion
In short, your marketing report should have three numbers: lead cost, CAC and LTV.
- Include all costs in CAC.
- Do not limit LTV to the first deal.
- If the ratio is below 3, check your funnel.
- Optimize customer cost, not lead cost.
Let's calculate your numbers together: book a consultation.
About the author. Safarmurod Abduroziqov is the founder and CEO of AURA Digital: 6 years in marketing, 50+ IT projects, ~$1M in managed ad budget. Telegram · LinkedIn
Frequently asked questions
What is CAC?
CAC (Customer Acquisition Cost) is the total marketing and sales cost spent to acquire one new customer. It differs from lead cost: a lead is not yet a customer.
What is LTV?
LTV (Lifetime Value) is the revenue a customer brings over the whole time they work with you. In B2B it includes extra services, modules and repeat contracts.
What should the LTV/CAC ratio be?
As a guideline, at least 3:1. If it is lower, acquiring customers is too expensive; if it is much higher, you may be spending too little on growth.
Does the agency fee go into CAC?
Yes. For a correct calculation, add the ad budget, agency or team fees, sales salaries and tool costs.