Definition
CLV:CAC is a SaaS metric that measures the total cost of acquiring a new customer against the revenue that a company earns from them till the time they are associated with the company.
Example
Suppose Vareto's Customer Lifetime Value is $450 and Customer Acquisition Cost is $125. Thus its CLTV:CAC ratio will be 3.6.For healthy SaaS companies, a CLV:CAC ratio of 3:1 or higher is considered better.
Why it matters
CLV:CAC ratio can give SaaS companies important information. It tells companies how effective their marketing and sales spends are, and whether their product pricing and churn rate are aligned. Companies can also measure this ratio against peers to get a better understanding of various strategies and their effectiveness.