Define LTV and CAC, and what's a healthy LTV/CAC ratio?

How to answer

CAC (customer acquisition cost) is the fully-loaded sales and marketing cost to acquire one customer. LTV (lifetime value) is the total gross-margin profit you expect from a customer over their lifetime — roughly (ARPU × gross margin) ÷ churn rate. A healthy benchmark is LTV/CAC of roughly 3x or higher, with CAC payback ideally under ~12 months for efficient SaaS.

Key idea: Computing LTV on revenue instead of gross margin, or ignoring churn. And forgetting that a high LTV/CAC with a 3-year payback can still strain cash.