If you know LTV and CAC, what is the LTV to CAC ratio?

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Prepare for the WGU MKTG 6040 D381 E-Commerce and Marketing Analytics Exam. Use flashcards and multiple choice questions with hints and explanations. Ensure your success on this crucial exam!

Multiple Choice

If you know LTV and CAC, what is the LTV to CAC ratio?

Explanation:
The main idea is comparing how much value a customer provides over how much you spent to acquire them. To form the LTV to CAC ratio, you divide LTV by CAC. This shows how many dollars of lifetime value you get for every dollar spent on acquisition. For example, if LTV is 100 and CAC is 25, the ratio is 4, meaning four dollars of value per dollar spent. The other operations aren’t the correct way to express this relationship: CAC divided by LTV would give the reciprocal, adding LTV and CAC mixes two different metrics, and subtracting them yields a margin, not a ratio.

The main idea is comparing how much value a customer provides over how much you spent to acquire them. To form the LTV to CAC ratio, you divide LTV by CAC. This shows how many dollars of lifetime value you get for every dollar spent on acquisition. For example, if LTV is 100 and CAC is 25, the ratio is 4, meaning four dollars of value per dollar spent. The other operations aren’t the correct way to express this relationship: CAC divided by LTV would give the reciprocal, adding LTV and CAC mixes two different metrics, and subtracting them yields a margin, not a ratio.

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