CAC vs LTV vs payback period: the three numbers that decide if your marketing works

If you can only measure three things, measure these: Customer Acquisition Cost (CAC), Lifetime Value (LTV), and payback period.

What is CAC and How to Calculate It

CAC = Total Sales and Marketing Spend / Number of New Customers

Include everything: advertising, agency fees, salaries, software, content production. If you spent 25,000 pounds and gained 100 customers, your CAC is 250 pounds. Calculate by channel for best insight.

What is LTV and How to Calculate It

LTV = Average Revenue Per Customer Per Month x Average Customer Lifespan (months)

If your average customer pays 500 pounds per month and stays 18 months, your LTV is 9,000 pounds. For project-based businesses, factor in repeat engagement rates.

What is Payback Period

Payback Period = CAC / Average Monthly Revenue Per Customer

If CAC is 250 pounds and monthly revenue is 500 pounds, payback is 0.5 months. If CAC is 5,000 pounds and monthly revenue is 200 pounds, payback is 25 months. Payback period determines cash flow and reinvestment speed.

The LTV:CAC Ratio

• Below 1:1 — Losing money on every customer. Unsustainable.
• 1:1 to 2:1 — Breaking even. No room for operational costs.
• 3:1 — Healthy. Three pounds earned for every pound spent.
• Above 5:1 — Very efficient or under-investing in growth.

Benchmarks by Sector

SaaS typically targets 3:1 to 5:1. E-commerce ranges 1.5:1 to 3:1. Professional services achieve 4:1 to 8:1 due to high LTV from retained relationships. More in our Marketing Benchmarks UK 2026 report.

Common Mistakes

• Excluding costs from CAC. Agency fees, software, internal time all count.
• Confusing revenue with profit in LTV. Use gross margin for accuracy.
• Ignoring churn. If 20% leave each year, average lifespan is 5 years, not infinite.
• Not segmenting by channel. Blended CAC hides inefficient channels.

Frequently Asked Questions

What is a good CAC for a UK small business?

It depends on your LTV. Always evaluate CAC relative to LTV, not in isolation.

How often should I recalculate?

Monthly for CAC by channel. Quarterly for LTV and payback period.