CAC = Total sales + marketing spend / New customers. Healthy LTV:CAC = 3:1 or better.
If CAC is
This tool is most useful during planning and review cycles: setting targets, evaluating performance, or comparing options. Standardised metrics make comparisons across periods or business units reliable.
Many business metric errors arise from using the wrong time period for the calculation. Annualising a figure from a seasonal month, or averaging a figure that changes over time, can produce misleading results that don't reflect steady-state performance.
A marketing manager calculates campaign ROI: £15,000 spend, £72,000 in attributed revenue, 35% gross margin. Net profit from the campaign: £10,200. ROI: 68%. The figure justifies the budget allocation and provides the benchmark for the next campaign.
3:1 is the benchmark. 1:1 means breaking even. 5:1+ is excellent. Below 1:1 = unsustainable.
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