Why the CAC/LTV Ratio Is the Pulse Check Your Business Needs

I often speak with fellow business owners and when discussing our businesses I am always curious to learn more about what their CAC/LTV ratio is to see how this applies to different industries. I am always surprised to learn many business owners still don't track this metric.

In the world of fitness studios, subscription models, and wellness programs, knowing your CAC/LTV ratio isn’t just smart—it’s survival. This metric tells you whether your marketing spend is actually building a sustainable business or just burning through cash.

💡So, what Is CAC/LTV?

• CAC (Customer Acquisition Cost): The average cost to acquire a new customer. Includes ad spend, marketing salaries, software, etc.

• LTV (Customer Lifetime Value): The total revenue a customer generates over their relationship with your business.

The formula looks like this:

Lifetime Customer Value/Customer Acquisition Cost = LTV/CAC Ratio

Example: If your average customer spends $1,200 over their lifetime and it costs you $400 to acquire them, your ratio is 3:1.

Now, some people will only include their marketing costs but for a more accurate ratio, you need to include anything you spend toward acquiring that customer. For example, if you are giving away 3 weeks free, then the lost revenue over that 3 week period must be included, or if you are giving away free PT sessions and the PTs are invoicing you for that time, you should include those costs as well.

Here is a detailed calculator to measure this but you can also create a simple spreadsheet as well CAC LTV Ratio

📊 Why is this a critical ratio to track?

• Profitability: A high ratio means you’re earning more than you spend to acquire customers.

• Scalability: Investors and operators use this ratio to gauge whether growth is sustainable.

• Marketing Efficiency: It helps you identify which channels are worth the spend—and which ones need a rethink.

Whether you are a sole trader, a company or you are looking to scale to multiple locations, it is always important to track this metric to ensure you are investing effectively in your marketing.

✅ So, what’s a Healthy Benchmark?

This can be different for each industry but as a rule of thumb:

• 3:1 is the gold standard. It means you’re earning three times what you spend.

• 1:1 or lower means you’re losing money on each customer—time to reassess.

• 5:1 or higher might sound great but could indicate under-investment in growth.

It's important to understand that this is a constantly moving ratio as you invest more or less into your marketing and other customer acquisition related costs as so, it is critical to understand what your target ratio is and the reasons why you either are or aren't hitting it.

If you are looking to scale, ensure you are hitting a healthy ratio consistently so you know its a model you can apply to the next location etc.

🛠️ So, how do you improve it?

There are a number of ways to improve this metric and each side of the equation is important. Invest in retention strategies to extend/maximise your LTV and ensure your acquisition costs are streamlined, and you are not overspending or under spending. To break it down:

• Increase LTV: Boost retention, upsell, or add value through memberships and challenges.

• Lower CAC: Refine targeting, improve messaging, or lean into organic channels like referrals and community events.

So, whether you're running a reformer studio, scaling a wellness brand, or managing any other business in any industry, the CAC/LTV ratio is your business’s reality check. Keep it lean, keep it honest—and let it guide your next move.