version: "1.0.0" name: ltv-cac description: Unit economics math — LTV (Lifetime Value), LTGP (Lifetime Gross Profit), CAC (Customer Acquisition Cost), payback period, ratio. Use to validate model viability, calibrate pricing, and justify (or kill) ads.

LTV : CAC Math

Source: Alex Hormozi, $100M Leads, Chapter 8 (Paid Ads Part II).

Definitions

LTGP — Lifetime Gross Profit

LTGP = (Average Price - Average Variable Cost) × Months Retained

Use LTGP, not LTV. LTV counts revenue; LTGP counts only what's LEFT after you serve the customer. That's what pays for ads.

CAC — Customer Acquisition Cost

CAC = Total Ad Spend / Customers Acquired

Include acquisition tools, the sales headcount you assign, commissions. Not just raw ad spend.

LTGP : CAC Ratio

Ratio = LTGP / CAC

Benchmarks:

• < 1:1 — you're losing money. Stop scaling.
• 1:1 to 3:1 — you survive. Doesn't scale well.
• 3:1 to 5:1 — healthy. Scale paid with confidence.
• > 5:1 — you're leaving money on the table in ad spend. Raise the budget.

Payback period

Payback = CAC / (Monthly Profit per Customer)

Benchmarks:

• < 30 days — Client-Financed Acquisition. Unlimited paid scaling.
• 30-90 days — healthy if you have the capital.
• > 90 days — risk of a cash crunch as you scale.

Source note: the canonical thresholds in the corpus (reference/100m-leads-extracts.md) are ratio ≥ 3:1 and payback ≤ 30 days. The intermediate bands (1:1–3:1, 3:1–5:1, >5:1, 30–90, >90) are practical/heuristic calibration for diagnosis — not numbers quoted verbatim from the book.

How to model from scratch

1. Average sale price: single deal size + average upsell × take rate
2. Average variable cost: cost to serve 1 customer (not overhead)
3. Average retention: if one-time, 1; if recurring, average months before churn
4. LTGP = (Price - Cost) × Retention
5. Current or target CAC
6. Ratio and payback

Example (digital course + community)

Core offer: $4,997 one-time
Upsell take rate: 30% × $1,997 = $599 expected
Continuity: 20% upgrade × $297/mo × 6 months = $357 expected
Blended average price: $4,997 + $599 + $357 = $5,953
Variable cost: $350 (hosting + support + payment processing)
LTGP = $5,953 - $350 = $5,603
 
Target paid CAC: $1,200
Ratio = 5,603 / 1,200 = 4.67:1 ✓
Payback = 1,200 / 1,997 (upsell profit within 30 days) = ~18 days ✓

Both benchmarks pass. Scale paid.

Trouble signals

• LTGP < 2x CAC → pricing too low or churn too high
• Payback > 6 months → cash-intensive model, demands capital
• Ratio drops as you scale → CAC rising faster than LTGP (channel saturation)
• LTV high but LTGP low → bad margin, fix delivery or price

When to use this skill

Detailed reference

See reference/100m-leads-extracts.md (Paid Ads + Money Math section).