Cost to win a customer versus value over time
Customer acquisition cost (CAC) is the average sales and marketing cost of gaining a new customer. If £1,000 of spending brings in 10 customers, CAC is £100. Lifetime value (LTV) estimates the revenue or profit a customer will bring over the whole relationship. How long customers stay, or retention, strongly affects that estimate.
Comparing CAC with profit-based LTV helps show whether winning customers is likely to pay off. Revenue-only LTV can make the return look better because it ignores the cost of serving customers.
Both depend on assumptions
CAC depends on which costs count, including staff or brand spending, and which new customers that spending is credited to. LTV depends on future retention, profit margins, and service costs. New products have little history to guide these estimates. Teams should state their assumptions and compare customer groups rather than treat one precise-looking ratio as a fixed fact.