You can have a product people love, a team working hard, and a marketing campaign that's "performing" — and still be building a business that mathematically cannot survive.
The number that reveals this is Customer Lifetime Value (LTV).
LTV is simply the total revenue you expect to collect from a typical customer from sign-up to churn. Compare that number to what it costs you to acquire them, and you know immediately whether the engine works.
How to calculate LTV
For subscription businesses, the math is straightforward:
LTV = Average Monthly Revenue per Customer × Average Customer Lifespan in Months
If customers pay you $60/month on average and typically stay for 14 months before canceling:
LTV = $60 × 14 = $840
For eCommerce, it's similar: multiply average order value by average number of orders per year, then by how many years the typical customer keeps buying.
Reading the LTV:CAC ratio
Once you have LTV, divide it by your Customer Acquisition Cost (CAC) to get the ratio that tells you everything:
| Ratio | What it means |
|---|---|
| Below 1:1 | You lose money on every customer. Stop scaling. |
| 1:1 to 2:1 | Barely covering costs. Needs work. |
| 3:1 to 4:1 | Healthy. The business is fundamentally sound. |
| 5:1 or above | Great unit economics, possibly underinvesting in growth. |
A 3:1 ratio is the generally accepted target for SaaS and subscription businesses. Below that, you need to either reduce CAC or improve retention before running more ads does anything useful.
The part most people miss: not all customers have the same LTV
This is where attribution data becomes genuinely valuable. Customers who come in from organic search often have higher LTV than paid ad customers. Email referrals often churn slower than discount-driven acquisition. Customers from certain geographies or industries might stay twice as long as others.
If you can track which channel each customer came from — down to the specific campaign or even the specific link — you can start calculating LTV by channel. That completely changes how you allocate budget. Suddenly you're not just optimizing for the cheapest click. You're optimizing for the customers who actually stick around.
Use our Free LTV Calculator to run your current numbers. Then use gometrify to start tagging every campaign link — so when you run the LTV calculation again in three months, you can filter it by acquisition channel and see which traffic sources are actually sending you the keepers.