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What is LTV finance?
A loan-to-value (LTV) ratio in home loan is the percentage of the property value that a bank or financial institution can lend to a property buyer. Lenders examine the LTV ratio before approving a home loan to ensure that they do not lend an amount that is higher than the property’s actual price.
Is CAC part of LTV?
The Customer Lifetime Value to Customer Acquisition (LTV:CAC) ratio measures the relationship between the lifetime value of a customer, and the cost of acquiring that customer. The metric is computed by dividing LTV by CAC. It is a signal of customer profitability, and of sales and marketing efficiency.
What is the LTV/CAC ratio and why is it important?
What is the LTV/CAC Ratio? LTV stands for “lifetime value” per customer and CAC stands for “customer acquisition cost.” The LTV/CAC ratio compares the value of a customer over their lifetime, compared to the cost of acquiring them.
What does it mean when your LTV is infinite?
And when a cohort goes asymptotic, it means that your LTV is actually infinite (even if it asymptotes at 5\%). And math formulas get mad at you when you introduce them to infinity. So yeah, actually calculating a definite lifetime (and therefore LTV) for even a moderately healthy business isn’t a thing you can really do.
How do you calculate the lifetime value of a customer?
LTV/CAC Ratio Formula. Below is the lifetime value to customer acquisition cost formula: LTV/CAC Ratio = [(Revenue Per Customer – Direct Expenses Per Customer) / (1 – Customer Retention Rate)] / (No. of Customers Acquired / Direct Marketing Spending) Example Calculation
How long does it take to recover CAC?
You can recover CAC in 2-3 months, but your customers all churn after 12 months. You have 0\% churn and great cash flow, but it’s only because you require a 5 year contract paid up front and now your sales cycle is super long. Or as Byron Deeter points out, there is more than one way to skin a cat: