LTV:CAC ratio

If a customer generates $600 of profit over their lifetime and cost $200 in advertising to acquire, the ratio is 3:1 - the usual rule of thumb for a healthy business. Below 1:1 you lose money on every sale and growth accelerates your bankruptcy.

Most failed e-commerce and app businesses die here. They scale advertising before the ratio works, on the assumption that volume will fix economics that were broken at every volume.

The ratio hides what actually kills businesses: timing. A customer worth $600 against $200 of acquisition cost is 3:1 whether that $600 arrives next month or over three years, but only one of those versions can grow without running out of cash. What matters alongside the ratio is payback - how many months until a customer has repaid what you spent to get them. Under three is comfortable; past twelve, growth has to be funded by somebody.

The most common error is measuring lifetime value in revenue instead of gross profit. An e-commerce brand with $600 of revenue per customer, a 35% margin and a $200 acquisition cost is not at 3:1. It is at 1.05:1, and it has been losing money on every order while the dashboard said otherwise.