LTV to CAC ratio for ecommerce: lifetime contribution, fully loaded CAC and payback
The LTV to CAC ratio compares what a customer brings you over time with what it cost to win them. For a brand selling consumables, LTV has to be lifetime contribution measured on real cohorts, CAC has to be fully loaded, and payback time matters as much as the ratio. Here is how to measure all three.
On this page
- How to calculate the LTV to CAC ratio
- Why LTV must be contribution, not revenue
- How to measure LTV from cohorts at 90, 180 and 365 days
- How to calculate fully loaded CAC
- CAC payback period: when does a customer pay you back?
- Is 3:1 a good LTV to CAC ratio?
- LTV to CAC calculator
- How to raise LTV honestly
- What to do this week
- Frequently asked questions
The LTV to CAC ratio divides what a customer is worth over their lifetime by what it cost to acquire them. For an ecommerce brand, LTV should be lifetime contribution, meaning revenue minus product, shipping, fees and refunds, counted on real cohorts. CAC should include every acquisition cost, not only ads. A customer who brings $71.40 of contribution and cost $54 to win is a 1.3 : 1 ratio.
How to calculate the LTV to CAC ratio
Four formulas cover it. LTV here means lifetime contribution: the money a customer's orders leave after the costs that come with them.
LTV, CAC and payback
LTV (lifetime contribution)average order value × contribution margin × orders per customer
CAC (fully loaded)all acquisition costs ÷ new customers
LTV : CACLTV ÷ CAC
Payback, in ordersCAC ÷ contribution per order
Illustrative: $70 × 60% × 1.7 orders = $71.40 of LTV. $54,000 ÷ 1,000 new customers = $54 of CAC. $71.40 ÷ $54 = 1.3 : 1, and $54 ÷ $42 = 1.3 orders to pay back.
Take an illustrative supplement brand. Its average order is $70 and its contribution margin is 60% after product, shipping, payment fees and refunds, so each order leaves $42. It acquired 1,000 new customers in one month for $54,000 of ads, creative and agency fees. Twelve months later, those customers had placed 1.7 orders each.
LTV = $42 × 1.7 = $71.40. CAC = $54,000 ÷ 1,000 = $54. LTV : CAC = $71.40 ÷ $54 = 1.3 : 1. Each customer paid back their acquisition cost and left $17.40 toward fixed costs and profit in their first year.
What "lifetime" should mean
Lifetime is a horizon you choose, not forever. Pick a fixed one and name it: 12-month LTV, 180-day LTV. An open-ended lifetime invites guesses, and a horizon longer than your oldest cohort is a forecast, not a measurement. In this post, LTV means 12-month LTV, because that is the oldest complete data the example brand has.
Why LTV must be contribution, not revenue
Every repeat order of a supplement ships a product. Count LTV in revenue and you credit yourself with money that goes straight back out to the manufacturer, the carrier and the processor. In the example, revenue LTV is $70 × 1.7 = $119, against $71.40 of contribution.
The CAC side has its own shortcut: dividing only ad spend by new customers gives $48,000 ÷ 1,000 = $48, while the fully loaded figure is $54. Combine the two shortcuts and the same customers look almost twice as good:
The same customers, four ways to count LTV : CAC
Illustrative example
Only the last bar describes money you keep. The others are the same customers, counted in flattering ways. If your margin still leaves out refunds, chargebacks or shipping, the contribution margin post lists every cost that belongs in it.
How to measure LTV from cohorts at 90, 180 and 365 days
A cohort is every customer whose first order fell in the same month. For each cohort, count the orders its customers have placed by fixed ages: 90, 180 and 365 days after their first order. Here is what three cohorts of the example brand could look like:
| Cohort (age today) | New customers | Orders per customer by day 90 | By day 180 | By day 365 |
|---|---|---|---|---|
| A (over a year old) | 1,000 | 1.27 | 1.45 | 1.70 |
| B (seven months old) | 1,200 | 1.31 | 1.49 | not yet |
| C (four months old) | 900 | 1.24 | not yet | not yet |
Rules that keep this honest:
- Use only complete columns. Each cell fills in once the cohort reaches that age. Cohort C's 1.24 at day 90 says nothing yet about its day 365.
- Never stretch a young cohort into a lifetime. A straight line drawn from cohort A's first 90 days (0.27 extra orders per customer) would have predicted about 2.1 orders by day 365. It reached 1.70.
- Net out refunds and chargebacks. A refunded order isn't lifetime value. Card networks typically allow disputes within 120 days of a payment, sometimes longer (Stripe), so a cohort younger than that still has disputes to come.
- Use the repeat orders' own value. If repeat buyers take a single bottle where first orders were bundles, their contribution per order is lower; use it.
- Keep subscribers apart. If you sell subscriptions and one-time orders, measure the two groups separately, so a change in one doesn't hide in the average.
How to calculate fully loaded CAC
CAC is everything you spend to win new customers in a period, divided by the new customers you won in that period. Count:
- ad spend on acquisition campaigns
- creative production: video shoots, editing, UGC creators
- agency or media buyer fees
- affiliate commissions paid on first orders
- tools used only for acquisition
In the example, $48,000 of ads plus $6,000 of creative and agency fees, divided by 1,000 new customers, is $54.
The denominator matters as much as the costs. CAC is per new customer, so orders from people who already bought don't count, even when an ad brought them back. If your acquisition campaigns keep reaching existing customers and you count those buyers as new, CAC looks cheaper than it is. Meta's own overview of its Advantage+ sales campaigns covers the settings for finding new customers and excluding existing ones:
CAC by campaign also needs every sale tied to the ad that brought it. RevvyScales gives each CTA click a click_id that your checkout reports back with the sale (conversion tracking), and its rvs parameter carries the campaign, ad set and ad across Meta, Google and TikTok (ad tracking).
Compare campaigns by the customers they bring
Once each customer carries the campaign that acquired them, you can run the cohort count per campaign, and the cheapest CAC doesn't always win. Two illustrative campaigns for the same product, at $42 of contribution per order:
| Campaign A | Campaign B | |
|---|---|---|
| CAC | $46 | $58 |
| Orders per customer by day 365 | 1.5 | 2.1 |
| LTV (contribution) | $63.00 | $88.20 |
| LTV : CAC | 1.4 : 1 | 1.5 : 1 |
| Left per customer after CAC | $17.00 | $30.20 |
| Payback | 1.1 orders | 1.4 orders |
On CAC alone, A wins. On what each customer leaves, B earns $13.20 more per customer, as long as you can carry its slower payback. Until a campaign's cohort reaches day 365, compare the campaigns on 90-day orders per customer as an early read.
CAC payback period: when does a customer pay you back?
The ratio says whether customers are worth what they cost. Payback says how long your money is out. In orders, payback is CAC ÷ contribution per order: $54 ÷ $42 = 1.29 orders. Count it in contribution, never revenue: in revenue terms this customer "pays back" on the first order ($70 is more than $54), which is how a losing campaign gets called a winner.
In time, read payback off the cohort. Cumulative contribution per customer passes the $54 CAC during month four:
Cumulative contribution per customer vs CAC
Illustrative cohort: $42 of contribution per order, $54 CAC
- Contribution per customer
- CAC
Months after the first order
Show the numbers
| Months after the first order | Contribution per customer | CAC |
|---|---|---|
| First order | $42.00 | $54.00 |
| M1 | $46.20 | $54.00 |
| M2 | $49.98 | $54.00 |
| M3 | $53.34 | $54.00 |
| M4 | $56.28 | $54.00 |
| M5 | $58.80 | $54.00 |
| M6 | $60.90 | $54.00 |
| M7 | $63.00 | $54.00 |
| M8 | $64.68 | $54.00 |
| M9 | $66.36 | $54.00 |
| M10 | $68.04 | $54.00 |
| M11 | $69.72 | $54.00 |
| M12 | $71.40 | $54.00 |
Payback decides how much cash growth ties up. Each month's 1,000 new customers cost $54,000 and return $42,000 on their first orders, so the cohort starts $12,000 down and only climbs out during month four. Keep acquiring 1,000 customers a month and, at any moment, your four youngest cohorts hold about $24,500 of your cash. Double acquisition and you double that.
A brand with a strong ratio and a slow payback can still run out of cash while it grows. One with a modest ratio and a fast payback can fund its own growth. Track both. If cash is the limit, set a CPA that pays back within the window you can carry:
Is 3:1 a good LTV to CAC ratio?
You'll often see 3:1 quoted as the healthy LTV to CAC ratio. It's a rule of thumb that comes from subscription software, where an extra customer costs little to serve and keeps paying month after month. It isn't a measured benchmark for supplements, and copying it can mislead you in either direction:
- Check what it was measured on. A 3:1 on revenue, at a 60% contribution margin, is 1.8:1 in contribution terms. Compare like with like.
- Physical products carry costs on every order. Each reorder ships a product, so the margin side of the ratio weighs more than it does in software.
- Repeat buying isn't automatic. Without a subscription, every reorder is a fresh decision.
- Cash moves differently. You pay for inventory and ads before the reorders arrive, so payback can matter more than the ratio.
Work out the ratio you need instead. Lifetime contribution has to cover the CAC, a share of fixed costs and the profit you want. A rough way to get the fixed-cost share is to divide a month's fixed costs by that month's new customers. Say the brand's fixed costs are $20,000 a month and it wins 1,000 customers a month: $20 each. It wants $10 of profit per customer. It needs an LTV of $54 + $20 + $10 = $84, a ratio of $84 ÷ $54, about 1.56 : 1.
At 1.3 : 1, the brand falls $12.60 short per customer. There are two ways to close the gap: 0.3 more orders per customer in the first year (0.3 × $42 = $12.60, so 2.0 orders instead of 1.7), or a CAC of $41.40 instead of $54.
LTV to CAC calculator
The calculator starts with the example brand: a $70 average order, a 60% contribution margin, 1.7 orders per customer over 12 months and a $54 CAC. Use the orders per customer you've actually observed, in a cohort old enough to have reached that age.
Calculator
LTV to CAC calculator
What a customer is worth over all their orders, against what it costs to win them.
- Lifetime profit per customer (before ads)
- First order after paying for the customer
- Orders it takes to earn the CAC back
LTV here is lifetime contribution — revenue minus product, shipping and fees — not revenue. Use a lifetime you have actually observed, not one you hope for.
It shows $71.40 of lifetime contribution, a 1.3 : 1 ratio, a first order that leaves the brand $12 short of its CAC, and a payback of 1.3 orders. Change orders to 2.0 and the ratio reaches the brand's target of about 1.56 : 1, which the calculator rounds to 1.6 : 1.
How to raise LTV honestly
LTV grows when customers keep using the product and find it easy to reorder. It doesn't grow for long from tricks: a hidden subscription or a cancellation maze turns into refunds and chargebacks, which come straight out of contribution.
- Time the reorder to the supply. A 30-day bottle runs out on day 30. An email a few days before, with a one-click reorder link, reaches the customer while they still take it. Check your own order data to see when reorders actually happen.
- Offer a subscription with clear terms. In the US, ROSCA makes it unlawful to charge for goods sold online through a negative option feature unless you clearly disclose all material terms before taking billing information, get the customer's express informed consent before charging, and provide a simple way to stop the recurring charges (15 U.S.C. 8403). State laws add their own rules; see auto-renewal laws. This isn't legal advice.
- Teach customers how to use it. A post-purchase sequence that explains how to take the product, what to expect and when, and what to do if it doesn't suit them keeps people using it and can cut avoidable refunds. The post-purchase email flow post has a sequence to start from.
- Make the first order bigger, honestly. A three-bottle first order brings more contribution up front and shortens payback, as long as the savings are real.
Measure every change on the next cohort's 90-day orders per customer, against the cohorts before it. The customer retention post goes further into the levers, and subscriptions get their own post:
What to do this week
- Pull your oldest complete cohort and count orders per customer at 90, 180 and 365 days.
- Work out contribution per order with refunds and chargebacks included, and multiply.
- Add up every acquisition cost from the month that cohort was acquired, and divide by new customers only.
- Compute the ratio, the payback in orders, the payback month and the cash your youngest cohorts tie up.
- Work out the ratio you need from your fixed costs and profit target, and compare.
- Pick one honest LTV lever, such as a reorder reminder timed to the supply, and judge it on the next cohort's 90-day orders.
Frequently asked questions
What is a good LTV to CAC ratio for ecommerce?
There is no single good ratio. The 3:1 figure often quoted is a rule of thumb from subscription software, not a measured benchmark for physical products. Work out the ratio you need: lifetime contribution must cover the cost to acquire the customer, a share of fixed costs and the profit you want. With a $54 CAC, $20 of fixed costs and $10 of profit per customer, you need about 1.56 : 1 in contribution terms.
How do you calculate customer lifetime value for ecommerce?
Multiply average order value by contribution margin to get contribution per order, then multiply by the orders a customer places over the period you measure. Take orders per customer from a real cohort of customers who all started in the same month, at a fixed age such as 365 days. A $70 order at a 60% margin and 1.7 orders in a year gives $71.40.
What is the CAC payback period?
It is the time a new customer takes to repay what you spent to acquire them, counted in contribution, not revenue. Divide CAC by contribution per order to get the orders needed, then read the time off your cohort data. A $54 CAC and $42 of contribution per order needs 1.29 orders; a cohort that reaches that in month four pays back in month four.
Should LTV include refunds and chargebacks?
Yes. Lifetime value should count only money you keep, so subtract refunds as a share of revenue, and chargebacks with their dispute fees, from each order’s contribution. Use rates measured on orders old enough for the guarantee period and most disputes to have arrived. Card networks typically allow disputes within 120 days of a payment, so very young cohorts flatter LTV.
What costs belong in CAC?
Everything you spend to win new customers in the period: ad spend, creative production, agency or media buyer fees, affiliate commissions paid on first orders and any tool used only for acquisition. Divide by the new customers won in the same period, not by all orders, because repeat buyers reached by your ads make CAC look cheaper than it really is.