CAC, LTV and payback: the 3 numbers investors check before valuation

Giovanni

2 days ago

2 min read

CAC, LTV and payback are the numbers a fund works out before it talks about your price. The most quoted rule is simple: when a customer's lifetime value (LTV) is 3x or more what it costs to acquire them (CAC), it pays to invest in acquisition (Bessemer Venture Partners, Scaling to $100 Million, 2024). At 1x, a customer only breaks even.

1. CAC: what a new customer costs

Add up sales and marketing spend for a period and divide by the new customers won in that period.

CAC = sales and marketing ÷ new customers

In practice: use the last 6 months and include the sales team's payroll. Without it, CAC looks smaller than it is.

2. LTV: the margin a customer leaves behind

LTV = monthly ticket × gross margin ÷ monthly churn

LTV uses margin, not revenue. A customer paying R$ 1,000 a month at 70% gross margin and 2% monthly churn is worth R$ 35,000 of lifetime margin (ILLUSTRATIVE EXAMPLE, hypothetical figures).

In practice: divide LTV by CAC. Below 3x, show the fund which channel you will test. Above, show why the round's money speeds up growth.

3. Payback: how many months to earn back CAC

Payback = CAC ÷ (monthly ticket × gross margin)

Bessemer suggests targets by segment: under 12 months for SMB, under 18 for mid-market and under 24 for enterprise. On average, companies with US$ 1–10 million in recurring revenue take 15 months.

In practice: if your payback is above your segment's target, cut the most expensive channel first and measure again in 90 days.

What about retention?

None of this holds if customers leave early. Typical gross revenue retention sits at 85% to 90% a year, per the same guide. Track yours by cohort: who joined in January, and how much they still pay in December.