Calculate Customer Lifetime Value vs Acquisition Cost ratio. The key SaaS metric.
3:1 LTV/CAC is the benchmark. Under 12 months payback is strong.
The LTV/CAC ratio is widely considered the single most important metric for subscription and SaaS businesses. It answers whether the value you extract from a customer exceeds what it costs to acquire them.
A ratio of 3:1 or higher is the commonly cited benchmark. Below 1:1, you lose money on every customer. Between 1:1 and 3:1, unit economics may be sustainable but leave little margin. Above 5:1, you may be under-investing in growth.
CAC payback period is equally important. Even with excellent LTV/CAC, a payback of 24+ months means you need significant upfront capital. The best SaaS businesses achieve payback in under 12 months.
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