Cash Love Story: LTV : CAC Ratio + Pay-Back
Revenue up but the wallet still wheezing? Time for a check-up. Two tools give the diagnosis: Lifetime Value (LTV) and Customer Acquisition Cost (CAC). Their headline number—the LTV : CAC ratio—shows if marketing spend turns into lasting profit. Then comes the Pay-Back Period, the stopwatch that tracks how fast cash races back into the bank. Nail both and you unlock scale at warp speed.
Quick Jump
- What Is LTV : CAC?
- What Is Pay-Back?
- Why These Metrics Matter
- Real-World Examples
- Benchmarks & Stats
- How to Improve Both
- Work With LPV Agency
What Is LTV : CAC?
The formula is simple — LTV ÷ CAC. Spend £100 to win a customer, pocket £600 gross profit over their life, and the ratio is 6 : 1. A chef-kiss result. Drop under 3 : 1 and your ads munch profit for breakfast.
LTV equals total gross profit per customer across every order or renewal. CAC piles up all spend—ads, sales calls, software—then divides by new customers gained.
Harvard Business Review calls 3 : 1 the health line. Anything lower needs a fix; anything higher signals room to scale. Yet a sky-high 8 : 1 can hint you’re underspending on growth—if pay-back stays sensible.
What Is Pay-Back?
Pay-Back Period measures the months until gross profit repays CAC. Spend £1 000, earn £1 000 profit in 45 days, and cash loops back in just 1.5 months. A healthy sprint. Anything stretching past six months can stall growth unless deep pockets cover the gap.
Why These Metrics Matter
- Unit economics check: Each customer either prints cash or burns it.
- Budget clarity: Guides where to push spend and where to pull back.
- Investor magnet: 3 : 1+ ratio plus <12-month pay-back wins funding.
- Cash-flow sanity: Faster pay-back cycles the ad budget sooner for compounding growth.
- Competitive edge: Outbid rivals for customers yet stay profitable.
Real-World Examples
🌐 SaaS
A B2B platform charges £100 per month, 24-month average life, 80 % gross margin.
- LTV: £1 920
- CAC: £600
- Ratio: 3.2 : 1
- Pay-Back: 7.5 months
🛒 E-Commerce
Sneaker boutique sees three £100 orders, 50 % margin.
- LTV: £150
- CAC: £45
- Ratio: 3.3 : 1
- Pay-Back: first purchase covers CAC—instant.
💼 Service Agency (like us)
12-month contract at £10k per month, £4k gross profit each month.
- LTV: £48 000
- CAC: £10 000
- Ratio: 4.8 : 1
- Pay-Back: 2.5 months
Benchmarks & Stats
- Ratio target: 3 : 1 minimum (Harvard Business Review).
- SaaS pay-back: 5–8 months (Stripe data).
- Average CAC: about $70 e-com, $536 B2B, $702 SaaS (Shopify, ProfitWell).
- LTV range: <$200 low-margin retail to six-figure enterprise SaaS.
Six Quick Wins to Lift Ratio & Shrink Pay-Back
- Upsell & bundle—boost average order size.
- Loyalty drives retention—longer customer life lifts LTV.
- Value-based pricing—small price bump, big gross profit jump.
- Kill waste—shift budget into channels with lowest CAC.
- Referral engine—zero-CAC clients love sticking around.
- Annual billing—cash lands upfront, pay-back can drop to zero.
Want 3× ROI on Every £ Spent?
LPV Agency helps £3M+ companies raise LTV, drop CAC, and scale—fast. Book your free strategy call and let’s turn your cash love story into a blockbuster.
