The rule I learned was that LTV divided by CAC above three is healthy. In practice every investor conversation goes straight to how many months it takes to earn back the acquisition cost.
Why is the ratio treated as the weaker number?
Accepted Answer
Because LTV is a forecast and payback is a measurement.
LTV needs an assumed lifetime, and for a young company that assumption is doing most of the work. Estimate churn slightly optimistically and the lifetime, and therefore the ratio, moves a long way. Two companies with identical performance can report very different ratios by choosing different assumptions.
Payback asks a narrower question with a checkable answer: how many months of gross profit does it take to recover what you spent acquiring the customer. Nothing about the distant future is needed.
It also maps directly onto whether you will need to raise money, which is the question being asked underneath.
Worth adding the error that makes LTV over CAC look better than it is, since it is nearly universal in decks.
LTV should be built from gross profit, not revenue. Using revenue inflates it by the whole cost of delivery, and at a 70 percent margin that is a ratio overstated by roughly 40 percent.
Check that before comparing any two companies on this number. Quite often the difference between them is the definition rather than the business.
There is also a survivorship problem. Early LTV is computed from your oldest cohorts, which are by definition the customers who stayed. That biases it upward exactly when you have least data.
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