Enter ad cost, new customers and contribution margin. You see CAC, LTV, the ratio and the payback period.
In short: CAC = advertising and sales cost ÷ new customers. LTV = contribution margin × orders per year × years. From about 3 : 1 (LTV to CAC) the ratio is often seen as healthy, which is a rule of thumb.
What remains after cost of goods, shipping, fees and returns.
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Next, calculate your break-even ROAS so you know how much advertising pays off.
CAC shows what a new customer costs, LTV what they bring in. Together they decide how much you can spend on advertising.
CAC = advertising and sales cost ÷ new customers. LTV = contribution margin per order × orders per year × years. Payback in months = CAC ÷ (contribution margin × orders per year ÷ 12).
€5,000 cost, 100 new customers: CAC €50. Contribution margin €20, 3 orders a year, 2 years: LTV €120. The ratio is 2.4 : 1, the CAC pays back after 10 months.
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CAC (customer acquisition cost) is all the cost you spend to win a new customer, divided by the number of new customers.
LTV (lifetime value) is the contribution margin a customer brings over the whole relationship.
A 3 : 1 ratio is often cited as a guide. What matters are your margin and how fast the CAC pays back.