Product · Metrics · LTV

LTV > CAC: The Simple Math of Product Survival

Why it's crucial for LTV to exceed CAC, and how to calculate it for different product models.

The sober truth of product economics: if LTV ≤ CAC — the business is dying, even if the product has 'user love' and a great NPS.

Economics is like gravity. You can ignore it, but eventually, it will catch up with you.

What are LTV and CAC?

Let's put it simply, without academic jargon—so you can explain it to an intern over coffee.

LTV (Lifetime Value)

How much net profit an average user brings over their entire lifetime in the product. Not revenue—profit.

For LTV to be honest, it's important to consider:

• Margin (commissions, infrastructure, support);
• Repeat purchases / renewals;
• Churn — it determines how many months a person stays with us.

CAC (Customer Acquisition Cost)

How much it costs to acquire one paying customer. Not an install, not a registration—a payment.

CAC = all marketing expenses / number of new paying customers in a period.

If CAC grows faster than LTV, the funnel turns into a 'leaky bucket.' Pouring more budget into it is pointless.

Simple Calculation Formulas (No Magic)

Subscription Model (SaaS, apps, services)

LTV = ARPU × Lifetime in months × Margin

Let's use an example:

• ARPU = €10/month
• Lifetime = 12 months
• Margin = 70%

LTV = 10 × 12 × 0.7 = €84

If CAC = €40, the LTV/CAC ratio = 2.1 For sustainable growth, a ratio of ≥ 3 is usually recommended, but reality is more flexible: early-stage products can survive on 1.5–2 if retention is growing.

One-Time Sales Model (e-commerce, courses, one-off services)

This one is simpler and harsher:

LTV = average net profit per purchase × purchase frequency

If there are no repeat purchases, LTV = profit from the first sale. This makes the business fragile: CAC must be even lower.

Marketplace Model (commissions)

LTV = Average Customer GMV × commission × activity period

It's important not to confuse GMV and profit here. A common mistake is to calculate LTV from revenue, forgetting that the real money is the commission.

Practical Tips: Where People Usually Go Wrong

1. Account for Margin—Without It, LTV Paints a Rosy Picture

Margin is your reality check. Low-margin products easily fall into the trap of 'LTV looks high, but there's no money.'

2. At Early Stages, Calculate Conservatively

If you know the lifetime could be 10–12 months, use 6–8. Early-stage math always lies on the optimistic side.

3. Segment CAC by Channel, Don't Average It

Facebook might give you a CAC of 30, but churn there is also sky-high. SEO might give you a CAC of 5, but it scales slowly. Mixing channels distorts the picture.

4. Revisit LTV Regularly—It's Not Set in Stone

Retention changes → LTV changes. ARPU changes → LTV changes. The product changes → everything changes.

LTV is not 'one number for a presentation.' It's a dynamic model.

5. Look at the Return on Investment

If the product has an expensive onboarding, LTV might be high, but it could take six months to recover the CAC. For fast-moving businesses, this is critical.

Mini-Map of Common Anti-Examples

• 'Our LTV is €300 because ARPU × 30 months' — but are you sure people will stay for 30 months?
• 'Our CAC is €5' — but is that CAC for a paying customer or a registration?
• 'We don't calculate margin, but we have a general idea' — no, you don't.
• 'When we scale, retention will improve' — it's usually the opposite.
• 'Our LTV is high because we have a lot of features' — features don't equal profit.

Calculation Examples by Product Type

SaaS Product

ARPU = €20 Lifetime = 10 months Margin = 80%

LTV = 20 × 10 × 0.8 = €160 CAC = €50 LTV/CAC = 3.2 — ready for growth.

Mobile App Subscription

Trial → 12% conversion to payment ARPU = €7 Lifetime = 5 months Margin = 65%

LTV = 7 × 5 × 0.65 = €22.75 CAC (subscription) = €18 LTV/CAC ≈ 1.26 — risky to grow, need to improve retention or price.

One-Time Sales

Profit per sale = €18 Average frequency = 1.3 purchases LTV = €23.4 CAC = €15 LTV/CAC = 1.56 — weak economics, highly sensitive to CAC fluctuations.

How to Use These Numbers for Decisions

LTV and CAC are not just formulas. They are:

• growth boundaries (how much money can be poured into marketing);
• an indicator of product quality (if people stay longer, LTV grows);
• a signal to focus (sometimes it's better to improve retention than to pour in budget);
• one way to compare segments (one channel might yield a high LTV with a higher CAC).

Economics isn't about Excel. It's a focusing tool.

Interactive LTV/CAC Calculator

Below is a simple calculator that lets you play with the numbers: ARPU, lifetime, margin, and CAC. A good way to ground discussions with the team.