April was a good month. You spent £30,000 on ads and 600 new people bought from you. It feels like a win. But did it make you money? That depends on two numbers.
CAC is what you spend on marketing to win one new customer. LTV is the profit that customer brings you over time. If LTV is bigger than CAC, each new customer pays for themselves. If it isn’t, growing faster loses money faster.
CAC = marketing spend ÷ new customers
12-month LTV = profit per order × orders in 12 months
Why cost per purchase isn’t enough
Ads Manager shows a cost per purchase. That counts a one-off buyer and a customer who orders every month as the same result. Push it down hard enough and you drift toward the cheapest buyers, who are rarely the ones who come back.
CAC and LTV fix that by asking two questions: what did this customer cost, and what will they leave you with?
Work out your CAC
Take one month. Divide total marketing spend by the number of first-time customers. For April:
Count new customers only. If you also had 1,200 repeat orders, you still won 600 customers, not 1,800.
Work out your LTV
Use profit, not sales. Profit per order is what’s left after the costs that come with every sale: the product itself, shipping and packing, payment fees, and returns and refunds.
Say your average order is £65 before VAT. Here is where it goes:
That £33.50 is about 52% of the £65.
Then multiply by how many times a customer orders in 12 months. Pull that from customers who first bought a year ago. Say it’s 2.4:
Put the two side by side
Here is what one customer costs, against what they leave you:
The ratio of the two is 1.6:1 (£80.40 ÷ £50). By month 12 each customer has left you about £30. That’s a business that can grow on paid ads, as long as the repeat orders really happen.
Try it yourself:
Try it with your numbers
Can you afford this customer?
Pays back within 12 months, on about order 2.
You know what a customer is worth. This is the bit that makes your day: what a new channel must spend to prove itself.
Read the ratio
With 12-month profit, 1:1 is break-even. Aim 20 to 30% above it.
| 12-month LTV to CAC | What it means |
|---|---|
| Below 1:1 | Customers haven’t paid back within a year. Fix this before you spend more. |
| 1:1 to 1.2:1 | Pays back, with no room for a bad month. |
| 1.2:1 to 1.3:1 and up | Healthy. Room to grow spend. |
Ratios you read online often use sales, not profit. Those look much bigger, so don’t compare yours against them.
Mistakes to avoid
- A 90-day window. If people reorder once a year, every customer looks unprofitable. Use 12 months.
- Leaving out returns. In fashion and footwear, returns can wipe out the margin you think you have.
- One blended number only. Customers from Meta and from Google can have very different repeat rates. Check each.
Where fixed costs fit
Staff, rent and software don’t change whether you win 100 customers or 1,000. Keep them out of CAC and LTV. Check them monthly instead: did this month’s profit after ads cover them?
Free tools to go further
- Easier Ads Budgeting: how much a new channel needs to spend for a fair test, built on the same per-order costs
- Easier Profit Calculator: coming soon
- What is MER?: the same costs, turned into the floor for your total marketing
- Break-even ROAS: the return a single channel needs to make
- Why winning new customers keeps getting more expensive: what to do when your CAC keeps rising
Peak is the easiest time to buy customers who never pay back. Let's make sure yours do.
Not sure your CAC is as good as your dashboard says? Book a free call and we’ll read it with you.
Quick answers
What is CAC in ecommerce?
CAC (customer acquisition cost) is what you spend on marketing to win one new customer. Divide your total marketing spend for a month by the number of first-time customers in that month.
What is LTV in ecommerce?
LTV (lifetime value) is what a customer is worth to you over time. Use profit, not sales: the profit per order after product, shipping, payment fees and returns, times the number of orders they place.
What is a good LTV to CAC ratio?
Using 12-month profit, 1:1 is break-even: the customer has paid back what it cost to win them. Aim for at least 20 to 30% above that, so 1.2:1 to 1.3:1, and more if you need the cash back fast.
Should I use lifetime or 12-month LTV?
Start with 12 months. It is measurable from your own order data, and it stops you betting on repeat orders that may never come.
Do staff and software costs go into CAC or LTV?
No. Profit per order uses only costs that rise with every sale. Staff, rent and software belong in a separate monthly check that your total profit covers them.
