What are LTV and CAC?
LTV (lifetime value) is the profit a customer generates over their whole relationship with you. CAC (customer acquisition cost) is what you pay to win a new customer; for ad-driven stores it's roughly the cost of the first purchase from ads.
LTV = average order value × margin × orders per year × years
Ratio = LTV ÷ CAC
Example: average order 400, gross margin 35%, and the customer buys 3 times a year for two years. LTV = 400 × 0.35 × 3 × 2 = 840. With a 150 acquisition cost, the ratio is 5.6 : 1.
What is a good LTV to CAC ratio?
- Below 1 : 1: you lose on every customer even if they come back.
- Between 1 and 3: you profit, but it may not cover salaries, rent and returns.
- 3 : 1 or higher is the common rule for healthy growth. Above 5 may mean you can spend more to grow faster.
How to use the calculator for Facebook ads
"Max safe CAC" is the key number: it's how high the first-purchase cost in acquisition campaigns can go. But remember that LTV arrives over months, while ads are paid today. Watch "orders to earn back CAC": if it's 3 orders and customers buy every 4 months, you need a year to recover the spend, which requires cash flow.
If your customers don't come back, calculate on a single order and use the break-even ROAS calculator instead.
Raise LTV instead of only cutting CAC
Ad costs can only go so low, while raising customer value is often easier: retargeting existing customers with complementary products, post-purchase WhatsApp messages, loyalty points, and subscriptions for consumables. Read Facebook Retargeting Campaigns: Audiences, Budget, Frequency and When They Tire to build campaigns for past customers, and Ecommerce Facebook Ads KPIs: The Numbers That Actually Decide Profit for the store metrics to track.