The LTV to CAC Ratio Benchmark
Among marketing leaders, the LTV to CAC ratio—the ratio between Lifetime Value of a Customer (LTV or CLV) and Customer Acquisition Cost (CAC)—receives top billing as a KPI for evaluating marketing investments. By comparing how much your company spends to acquire each new customer against the average value of a customer, you can determine if you are over- or underspending.
The most common benchmark for LTV-to-CAC ratio is 3:1. This means an average business would spend about one-third of a customer’s lifetime revenue to acquire that customer. This general benchmark does not account for industry variance, however, with some industries (such as commercial insurance) seeing much higher ratios on average than others.
This article outlines key nuances of LTV-to-CAC ratios and then provides specific LTV-to-CAC benchmarks based on client data for each of 29 major industries. We conclude by considering the most effective way to improve your LTV-to-CAC ratio.
LTV to CAC Ratio Benchmarks by Industry
Our analysts examined the LTV-to-CAC ratio benchmarks for 29 industries. We began by determining each industry’s average LTV and CAC over a 3 year period, then calculated the LTV:CAC ratio.
Note: We compiled the data included in the table between 2017 and 2022. 68% of the data was obtained from organic marketing channels, and 74% from B2B firms. Our clients also skew midsized and larger; earlier-stage businesses will be spending more on customer acquisition and therefore see lower LTV:CAC ratios.
|Industry||LTV Benchmark||CAC Benchmark||LTV:CAC Ratio|
|Aerospace & Defense||$3,249||$722||4.5:1|
|Higher Education & College||$7,118||$1,424||5:1|
|IT & Managed Services||$2,039||$583||3.5:1|
|Oil & Gas||$2,570||$857||3:1|
|PCB Design & Manufacturing||$2,223||$494||4.5:1|
|Transportation & Logistics||$1,752||$584||3:1|
The Intricacies of LTV to CAC Ratios
When evaluating your own company’s LTV to CAC ratio, keep the following context in mind:
- Companies prioritize growth in different ways. While SaaS companies can grow without experiencing cost increases in physical infrastructure or inventory, resource-dependent industries cannot accommodate a similar growth pattern. If your business has grown significantly and you’re focused on gross margin, a high LTV-to-CAC ratio can be the key to optimizing the business before expanding. There is a point in every company’s lifecycle—whether SaaS or resource-driven—when profitability is more valuable than rapid growth.
- More mature businesses will see higher LTVs and lower CACs than startups. Healthy firms raise LTV over time by expanding their product and service library, improving or adding features, and strengthening their industry reputation. Successful marketing departments will have time to set their sights on the lead generation channels with the lowest CAC, negotiate better deals with vendors, and benefit from better pricing due to economies of scale.
- CACs should be calculated over a substantial length of time. Many industries see significant seasonal effects on customer demand. While LTVs are inherently a long-term metric, CACs must be intentionally calculated on an annual or biannual basis to account for these seasonal variations.
Improving Your LTV to CAC Ratio
In our campaigns, we’ve observed significant improvements in LTV-to-CAC ratio when businesses primarily leverage organic marketing for lead generation. While most businesses utilize a combination of organic and paid marketing channels, the paid channels tend to occupy the role of short-term lead generation early in a product’s life, while organic channels sustain lead generation long term.
To attain an optimal LTV-to-CAC ratio, your marketing team must have a strong handle on organic customer acquisition, particularly content marketing. It is difficult to have the combination of knowledge, experience, and manpower in-house, which is why many business choose to outsource their organic efforts to agencies like ours. If you’d like to schedule a conversation to learn how we can grow your company’s revenue efficiently, you can contact us here.