LTV to CAC = lifetime gross profit per customer ÷ acquisition cost per customer
$1,080 ÷ $360 = 3
Where does the 3 to 1 rule come from?
From software. Venture investor David Skok's writing on SaaS metrics popularised two tests for subscription software companies: lifetime value at least three times acquisition cost, and acquisition cost recovered within 12 months. Those companies often keep most of each subscription as gross profit, and investors' money lets them wait years to collect it.
A small business usually has a lower margin and no investor funding the wait. A ratio of 3 to 1 worked out on revenue can be well under 1 to 1 on profit. So the rule travels badly unless you bring your own margin and your own bank balance with it.
Is a wine club member in Orange worth winning at $360? (example figures)
A family winery near Orange runs a wine club: four shipments a year at $240 each. After the wine, the freight and the packaging, each shipment leaves $108 in gross profit, a 45 percent margin. Members stay about two and a half years. Winning one costs $360 in Meta ads, a cellar door tasting event and free freight on the first shipment.
| On revenue | On gross profit | |
|---|---|---|
| Lifetime value | $240 × 4 × 2.5 = $2,400 | $108 × 4 × 2.5 = $1,080 |
| Acquisition cost | $360 | $360 |
| Ratio | 6.7 to 1 | 3 to 1 |
| Shipments to repay $360 | $360 ÷ $108 = 3.3, about 10 months |
The revenue figure flatters the club by more than double. The profit figure still says yes, with a catch the ratio does not show: the winery waits 10 months for each new member to pay back, and a member who cancels after two shipments never does.
What test fits an owner-led business better?
Two questions, asked in order. First, does the lifetime value in gross profit clear the acquisition cost with room left for rent, wages and your own pay? Second, does the payback period fit inside the time you can fund and inside the time a typical customer stays? A ratio of 3 to 1 with a 30-month payback and a two-year average stay fails the second test, however good it looks on a slide.
For the winery, both answers are yes. The owner's next lever is the second year: a member who stays three years instead of two and a half lifts the ratio to 3.6 to 1 without a cent more in ads.
Does CoraVision work out the ratio for you?
Half of it: CoraVision gets the top of the ratio from you. Your average sale is one of the first questions in the onboarding call, and Cora works out lifetime value from your answers. The bottom is split between the dashboard, which shows a 7-day cost per acquisition for Google Ads and Meta, and your own books, because agency fees and your own hours are acquisition costs too. Any budget change that follows is yours to make.
Questions
Can the ratio be too high?
Yes. A ratio of 10 to 1 usually means you could spend more to win customers and still do well. Owners who keep acquisition spend tight sometimes leave years of growth on the table, so a very high ratio is a prompt to test a bigger budget in steps.
How many years of lifetime value should go into the ratio?
Fewer than you think. A customer who might stay ten years is worth less to you today than the sum suggests, because the later years are uncertain and the cash arrives late. Many owners cap lifetime value at two or three years for this sum and treat the rest as upside.
What if I have no lifetime value figure yet?
Estimate it from three answers: what a customer spends each time, how often they buy, and how long they stay. Multiply them, apply your gross margin, and label it an estimate until your sales records can replace it.