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Why LTV/CAC is a Misleading SaaS Metric and Should be Replaced with Customer NPV

By Scott Stouffer on Oct 8, 2020 2:58:31 PM

How the quest for simplification drove ignorance (not dissimilar to politics)

Lifetime Value / Customer Acquisition Costs (LTV/CAC) has long been a foundational metric to indicate the quality and health of a SaaS company’s business model. It is intended as a simple proxy for unit economics of a customer, or how valuable each customer is to a given company.

Unfortunately, inconsistencies in the way companies measure LTV/CAC and its oversimplification in considering the time value of money and cost of capital render it essentially useless in real-life practice.

Topics: SaaS Metrics CAC