Your numbers
Your Profitability
Profitable: You generate a net margin of €63 per customer.
Break-even point: LTM / CAC = 1. You are at 2.79.
Why Use LTM Instead of ROAS for Optimization
ROAS tells you how much revenue one euro of advertising generates. It doesn’t tell you what’s left after you’ve paid for the product, customer acquisition, and time. LTM (Long-Term Margin) answers the real question: how much margin each customer generates for you over their lifetime. It’s what determines the maximum CAC you can afford.
A beauty brand, with these figures:
- 70 €Medium basket
- 3Orders / Life
- 65%Gross margin
- 40 €CAC
Its LTV is €210, but its actual LTM is €136, resulting in an LTM/CAC ratio of 3.4.
It can therefore increase its CAC to as much as €136 per customer—three times its current acquisition cost—while remaining profitable. In terms of ROAS, it would have left that margin on the table.
LTV, LTM, CAC: Clarifying the Terms
LTV (Customer Lifetime Value) is the total revenue a customer generates over the course of their lifetime. LTM (Long-Term Margin) subtracts the cost of goods sold from this figure: it represents the actual margin you’re left with, not gross revenue. CAC is what you pay to acquire a customer. Managing based on LTM means comparing what a customer actually brings in to what it costs to acquire them, rather than relying on apparent revenue.
ROAS is misleading; profit margin isn't
A ROAS of 3 can be very profitable or disastrous, depending on your product margin. For a product with a 30% margin, a ROAS of 3 means you’re losing money; for a product with a 70% margin, it’s comfortable. ROAS doesn’t take into account product costs, customer acquisition costs, or repeat purchases. LTM takes all of this into account and provides the only figure that truly matters: how much you can pay for a customer while remaining profitable.
View your LTM/CAC ratio
An LTM/CAC ratio greater than 1 means that every customer is profitable. If it’s below 1, you’re losing money on every acquisition. The higher the ratio, the more room you have to scale your acquisition efforts. Many brands unnecessarily limit themselves by setting their CAC too low, because they focus on ROAS instead of lifetime margin.
The rule is simple: as long as your CAC remains below your LTM, every customer you acquire is profitable. The calculator above shows you this threshold in real time.
Frequently Asked Questions
What is a good LTV/CAC (or LTM/CAC) ratio?
As a general rule, an LTM/CAC ratio of at least 3 indicates healthy customer acquisition and room to scale. If the ratio is below 1, you’re losing money on every customer you acquire. A very high ratio isn’t always a good sign either: it may indicate under-acquisition, meaning growth left on the table.
What is the difference between LTV and LTM?
LTV is the total revenue a customer generates over their lifetime. LTM (lifetime margin) subtracts the cost of goods sold from this figure to reveal the actual margin. Managing customer acquisition based on LTM avoids the optical illusion created by LTV, which can appear high even when the actual margin is low.
How do I calculate the maximum CAC I can afford?
Your maximum profitable customer acquisition cost (CAC) is equal to your lifetime margin (LTM). As long as your customer acquisition cost remains below your LTM, each customer is profitable. This tool calculates your LTM based on your average order value, the number of orders per customer, and your gross margin, and then determines your maximum CAC.
Why use margin as a metric rather than ROAS?
ROAS measures the revenue generated per euro spent on advertising, but does not account for product costs or acquisition costs. The same ROAS can be profitable or unprofitable depending on your margin. Lifetime customer value takes all costs into account and provides the true break-even point—something that ROAS alone never does.
How do you calculate the profitability of an e-commerce customer?
Take the customer’s average order value, multiply it by the number of orders over the customer’s lifetime, and then multiply that by your gross margin: this gives you the customer’s lifetime margin. You then compare this margin to your customer acquisition cost. If the margin exceeds the customer acquisition cost, the customer is profitable. That’s exactly what this tool calculates.
Is this tool suitable for subscriptions and B2B?
Yes, the principle still holds true: you just need to adjust the number of orders based on your purchase frequency or the average subscription duration. Calculating lifetime profit compared to customer acquisition cost applies to any model where a customer makes more than one purchase.
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