The LTV:CAC explore allows merchants to compare average customer lifetime value (LTV), which in this explore we define as a customer’s total gross margin, with the average of customer acquisition cost. The way to read this metric is that the LTV:CAC ratio will be equal to one where total gross margin is equal to acquisition cost, which would represent when that specific cohort has “paid back” the amount equal to their cost of acquisition. When the metric is greater than 1, that customer/cohort has now become profitable for the merchant, and when the metric is less than 1 that customer/cohort has not yet “paid back” its acquisition cost.
Common Use Cases
- Compare monthly customer LTV with acquisition cost
- Construct a ratio of LTV:CAC to determine average customer payback period
Exploring data can be insightful and fun! Before you start your exploration, make sure to go through our Using Explores Bootcamp.
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