Understanding the concept
What is CAC?
CAC stands for Customer Acquisition Cost — the total amount you spend to bring in one new paying customer. If your CAC is ₹500 but each new customer only brings you ₹200 in gross profit, you are losing money on every customer you acquire — no matter how fast you grow. A healthy business always has CAC significantly lower than the Lifetime Value of a customer. The golden rule: LTV must be at least 3× your CAC.
CAC
=
( Marketing Spend + Sales Team Cost + Agency Fee ) ÷ New Customers Acquired
LTV
=
Avg Order Value × Gross Margin % × Purchases per Year × Customer Lifespan (years)
📢
Marketing Spend
All money spent on ads, promotions, content, social media, events and campaigns to attract new customers during the period.
👥
Sales Team Cost
Salary and incentives of sales staff who actively work on converting new customers. Do not include staff who only manage existing accounts.
🏢
Agency / Platform Fee
Any marketing agency retainer, influencer fee, platform fee, or consultant cost paid specifically for customer acquisition during the period.
LTV : CAC Ratio — What It Means
🔴
LTV < CAC
Losing money on every customer. Unsustainable — fix pricing, COGS or acquisition channels immediately.
⚠️
LTV = 1–2× CAC
Barely breaking even on acquisition. Leaves no room for overheads or profit. Needs urgent improvement.
✅
LTV = 3× CAC
Healthy benchmark. Industry standard target. You earn enough from each customer to cover costs and make profit.
🚀
LTV > 5× CAC
Excellent unit economics. Strong foundation to scale — every new customer significantly adds to business value.
CAC alone means nothing. Always compare it to your Gross Profit per Customer. If CAC is higher than gross profit per customer, you are losing money on every acquisition — no matter how fast you grow.