What should the ratio of lifetime value to acquisition cost be?

A three to one ratio is a widely repeated rule of thumb in the SaaS literature, but it emerged from venture-backed subscription businesses and carries assumptions about margin and payback period that do not hold for a retail or single-purchase model. Before judging anything, confirm both sides of the ratio use one definition and one cohort, otherwise the ratio itself means nothing.

How does lifetime value differ from average revenue per user?

The time horizon. The second divides one period's revenue by that period's users and is a backward-looking measurement; the first multiplies that figure by an estimated lifetime and becomes a forecast. Any error in the lifetime estimate is amplified directly in the output.

Customer Lifetime Value (LTV)

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Updated Jul 11, 2026 Shahin editorial 3 min read

PronunciationEN/ˈkʌstəmər ˈlaɪftaɪm ˈvælju/

Customer lifetime value is an estimate of the total revenue one customer generates across the whole of their relationship with the business.

The figure is an estimate rather than an observation; the only exactly measurable version is the realised value of cohorts that have fully churned, and everything else projects forward. Two families of calculation are common and do not agree: the subscription model, which multiplies revenue per period by an estimated lifetime, and the cohort model, which plots the cumulative revenue curve of a cohort and fits its continuation. The term is genuinely ambiguous in the industry: some teams base it on revenue and others on gross margin, and because neither usually says which, two numbers under one name are not comparable, with the ratio against customer acquisition cost inheriting the same ambiguity. The most frequent calculation error is dividing period revenue by a small, young churn rate, which yields a lifetime of several years the business has never observed and on which an advertising budget then gets built.

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