How to Know If Marketing Is Profitable | LTV:CAC & CPA
Is marketing profitable? Use LTV:CAC or CPA: what to include (gross profit, cost to fulfill), good ratios, going upmarket, and how brand and positioning keep CPA reasonable.
Is marketing profitable? LTV:CAC & CPA
Spend and revenue show what went in and what came out—not whether marketing is profitable. The real check is LTV:CAC (lifetime value to customer acquisition cost), or simply CPA (cost per acquisition) vs. the profit you get from that customer.
Ratio = lifetime value per customer ÷ what you paid to acquire them. That tells you if each customer makes money and how much you can safely spend on growth.
Why it matters
- Which channels and markets to double down on—and which to fix or cut.
- Scaling what actually works—instead of guessing.
- Keeping real money in your pocket as founder or C-level—profit per customer, not just revenue.
Money in your pocket
Profit per customer, not just revenue. Below 3:1, you’re usually not keeping much.
Double down on the right places
LTV:CAC per channel and per market. Know which to scale and which to fix or cut.
Scale what works
Higher ratio = more room to invest in acquisition without burning cash.
Segmentation: one message, one market
Many companies have multiple segments or ICPs. Blended LTV:CAC hides what’s working.
No real predictability until you have one business value message you can profitably send to one market. Usually ABM for a segment, or paid ads if TAM is big enough. Until then, LTV:CAC is directional only.
What’s a good ratio?
Depends on model and stage. B2B SaaS: 3:1–4:1 is typically healthy.
Losing money per customer. Reduce CAC or increase LTV.
Not sustainable. Optimize efficiency or retention.
SaaS standard. Maintain while scaling.
Strong margin. Room to invest in growth.
Consider increasing spend to accelerate growth.
How to calculate
Four numbers you need. Do them in order: LTV and CAC first, then the ratio and payback.
LTV (Lifetime Value)
Total gross profit you expect from one customer over the time they stay—not revenue. Use gross profit so the ratio reflects real margin.
ACV × Gross Margin × Lifespan (years)
Annual contract value × gross margin % × average years they stay (from churn). Gross margin = after cost to fulfill.
Example: $12,000 ACV × 80% × 3 yr = $28,800
CAC / CPA (Cost to Acquire)
What you spent to get one new customer. For true profitability, include all S&M; optionally include cost to fulfill/onboard if you want full “cost to land.”
Total S&M spend ÷ New customers
All sales and marketing in a period ÷ new customers. Add fulfillment/onboarding cost per customer if you want to compare to LTV that’s already gross profit.
Example: $50,000 ÷ 10 = $5,000 per customer
LTV:CAC (or LTV ÷ CPA)
How much gross profit you get per dollar spent to acquire. Same idea as LTV:CAC—LTV ÷ CPA.
LTV ÷ CAC (or CPA)
Lifetime value (gross profit) ÷ cost per acquisition. Above 3:1 is typically healthy for SaaS.
Example: $28,800 ÷ $5,000 = 5.76:1
Payback period
Months until you’ve earned back the cost to acquire that customer.
CAC ÷ Monthly gross profit per customer
CAC ÷ (ACV/12 × Gross Margin). Shorter = faster cash recovery.
Example: $5,000 ÷ $800/mo ≈ 6 mo. Target: under 12 months for SaaS.
What to include so the ratio is real
LTV = gross profit over the customer’s lifetime (revenue minus cost to fulfill), not raw revenue. That’s the margin you actually keep.
CPA / CAC = what you spend to acquire. For a proper view of profitability, include all S&M. If you also include cost to fulfill or onboard per customer, you’re measuring full “cost to land”—stricter, but clearer. Either way: LTV must be gross profit so you’re comparing like to like.
Common mistakes
Incomplete CAC
Include salaries, tools, overhead—not just ad spend.
Revenue in LTV
Use gross margin, not revenue.
Ignoring churn
Use actual churn data for lifespan.
Blending segments
One message, one market, profitably first (ABM or ads).
Ratio alone
Pair with payback and growth stage.
No channel split
LTV:CAC per channel to see what works.
Is your marketing profitable?
LTV:CAC is clearest for paid and performance. Brand and content influence LTV and pipeline but don’t show cleanly in the ratio—track them separately.
Ratio
≥ 3:1 = profitable. < 3:1 = optimize.
Payback
< 12 mo for SaaS. Longer = capital tied up.
Segment & channel
Per segment, per channel. Predictability = one message, one market (ABM or ads).
Brand & content
Hard to attribute. They lift LTV and pipeline—track separately or treat as directional.
Stage
Not profitable + not growing = fix profitability first.
Going upmarket: CPA goes up—that’s normal
When you move into enterprise, regulated sectors, or RFP-heavy deals, CPA (and CAC) usually go up. Longer cycles, more stakeholders, more touch. That’s not a bad sign by itself.
What matters is that LTV goes up with deal size and retention—so the ratio can still be healthy. Judge profitability by LTV:CAC for that segment, not by comparing that CPA to a mid-market number.
Takeaways
- LTV = gross profit over lifetime (after cost to fulfill). CPA/CAC = what you spend to acquire. Ratio = LTV ÷ CPA.
- Segment by market and channel. Real predictability = one message, one market, profitably.
- Going upmarket (enterprise, RFP, regulated) = higher CPA. Not bad if LTV rises with it. Brand and positioning keep CPA reasonable.
How to keep CPA reasonable—and when we can help
To keep CPA (and LTV:CAC) in a healthy range you need: clear positioning and one message for one market, an efficient path to close (so you’re not buying every conversation), and enough brand and authority that prospects already trust you before the first call.
Brand, positioning, and authority lower the cost to convert—they don’t show up in LTV:CAC directly, but without them you pay more to acquire the same customer. We help with positioning, ICP, and GTM so your CPA stays reasonable as you scale.