CAC vs LTV

Customer Acquisition Cost (CAC) and Customer Lifetime Value (CLV or LTV) measure different aspects of customer economics in SaaS businesses. CAC calculates how much a company spends to acquire a new customer, including all sales and marketing expenses divided by the number of new customers gained during a specific period, essentially measuring the investment required to grow the customer base. CLV, on the other hand, estimates the total revenue a business can reasonably expect from a single customer throughout their relationship, typically calculated by multiplying the average revenue per customer by the average customer lifespan, representing the return on that acquisition investment.

A SaaS company should focus on CAC when evaluating the efficiency of specific marketing channels or sales strategies. For example, if a company discovers their CAC has increased significantly for customers acquired through paid search while remaining stable for referral customers, they might reallocate their marketing budget toward referral programs. Conversely, the same company would emphasize CLV when making strategic decisions about customer segments or product development. If analysis reveals that enterprise customers have a CLV five times higher than small business customers despite a CAC only twice as high, this would justify investing more resources in enterprise sales and features that serve larger clients. These metrics are most powerful when used together—comparing the CLV:CAC ratio across different customer segments helps identify which customer types deliver the best long-term value relative to their acquisition cost.