Understanding Unit Economics
The LTV:CAC ratio is the most important metric for understanding if your business is sustainable. If it costs more to acquire a customer than they pay you over their lifetime, you have a broken business model.
Interpreting the Ratio
1. **Less than 1:1**: You are losing money on every customer.
2. **1:1 to 3:1**: You are in the "danger zone" or early growth. Needs optimization.
3. **3:1**: The healthy benchmark for most VC-backed startups.
4. **5:1+**: You are likely under-spending on marketing and could grow faster.