CLTV / CAC = 5X
The Simple Math Every Entrepreneur Must Know: CAC vs. CLTV
I often say that every business is in the business of finance—and this article is no exception. No matter what industry you’re in, your success comes down to one simple financial equation:
Customer Acquisition Cost (CAC) vs. Customer Lifetime Value (CLTV).
This ratio is the foundation of a sustainable business. It’s simple:
CAC = The total cost of acquiring a customer (marketing, sales, travel, pilots, content, etc.).
CLTV = The total profit a customer generates over their lifetime, after deducting costs (support, maintenance, overhead, etc.).
The Golden Rule: 5x or More
For a healthy business, your CLTV should be at least 5x your CAC. Anything lower, and you're treading dangerous waters—spending too much to acquire customers without getting enough value in return.
The Real Problem: Not Maximizing CLTV
Many companies focus heavily on acquiring customers but fail to expand their value or prevent early churn. The biggest driver of business success isn’t just getting customers—it’s growing their value.
How to Improve Your CAC to CLTV Ratio
Instead of cutting CAC (which often backfires), focus on increasing CLTV by:
Upselling & Expanding – Sell additional services or expand into more teams/sites within your client’s organization.
Raising Prices – Ensure pricing reflects the value delivered.
Reducing Support Costs – Invest in automation, self-service onboarding, and better product design.
Making Your Product Sticky – Add features that increase retention and engagement.
Bottom Line: 5x CAC/CLTV—Make It Happen
A thriving business isn’t just about signing new clients. It’s about maximizing value from each one. Keep your math in check, and you’ll build a business that lasts.
