9.1
LTV:CAC and CAC Payback
The ratio of a customer's expected lifetime gross profit to the cost of acquiring them, with payback period as the time taken to recover that cost.
No single originator; VC practitioner convention (Skok, Bessemer)
What it does
Lifetime contribution against acquisition cost, and how many months until the cost is recovered. Says quickly whether growth is self-funding.
When it breaks
LTV is a forecast, and extrapolating it from early cohorts is the most common error in the field. Note also that the 3:1 ratio and the twelve-month payback rule are conventions, not findings. They are routinely presented as research.
Case
Daniel McCarthy's analysis of Blue Apron's 2017 S-1 found CAC rising from a $94 historical average to roughly $169 in Q1 2017 against about $25 monthly gross profit per subscriber, pushing payback from around 4.5 to 8 months while over 62% of customers churned within six months.
Daniel McCarthy · Blue Apron's IPO filing ↗In the wild
Unchecked · not part of the tier
What people have written about this tool in the last twelve months. A machine found these and nobody has read them. Everything above this line was checked by hand.
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