The Customer Lifetime Value (LTV) to Customer Acquisition Cost (CAC) ratio measures the relationship between the total amount of money a customer will spend at your store in their lifetime, and the cost of acquiring that customer. Within Polar, you can easily calculate this metric by dividing LTV by CAC - and as long as this number remains above 3x, your business will scale indefinitely.
How to calculate your LTV:CAC ratio:
Step 1) Select "Create metric" in the Custom Reports menu.
Step 2) Create the formula below for the LTV:CAC ratio in the Custom Metrics builder, and give your metric a name.
Step 3) Once you've saved your metric, you can pull it into your Key Indicators dashboard, and even include it in your scheduled reports to easily monitor any changes.
How to interpret your LTV:CAC ratio:
If your LTV:CAC ratio is below 3x, this means that your customers are spending less than 3 times more than the money you spend to acquire them, and you likely need to reduce or optimize your marketing spend. You can leverage the Optimization Insights tables in the Acquisition tab to pinpoint campaigns that are yielding lower returns (or which are costing you the most), and could be deprioritized.
If your LTV:CAC ratio is above 3x, congratulations! You likely can afford to spend more on marketing efforts and invest more in the campaigns that are yielding the highest return. Take a look at the "Expand these campaigns" section on the Acquisition tab to get a better idea of which campaigns are currently yielding the highest ROAS.