ROAS, CAC and customer lifetime value: the numbers every business owner should understand
Return on ad spend (ROAS)
Revenue generated by an ad divided by what the ad cost. Spend 1,000 and generate 4,000 in sales and your ROAS is 4x. On its own it doesn't tell you whether you're profitable, because it ignores product cost, shipping and returns.
Customer acquisition cost (CAC)
Total marketing spend divided by the number of new customers in the same period. It includes ads, fees and content, not just media.
Customer lifetime value (LTV)
The total profit you expect from a customer over the whole relationship. A customer who buys once is a completely different business from one who returns every month.
How to read the three together
| Situation | Meaning | Decision |
|---|---|---|
| LTV far above CAC | Healthy marketing | Scale with confidence |
| LTV close to CAC | Thin margin | Improve conversion or order value |
| CAC above LTV | You lose on every customer | Stop and rethink the offer and targeting |
Common reading mistakes
- Judging a campaign on the first order alone in a repeat-purchase business.
- Comparing ROAS across platforms without aligning attribution.
- Forgetting fixed costs when calculating CAC.
- Relying on platform numbers alone without matching them to actual sales.
How to start in practice
- Work out your real margin per product or service.
- Pull the average number of purchases per customer from last year's data.
- Set the maximum acceptable acquisition cost.
- Review all three numbers monthly in a single report.
The bottom line
ROAS alone misleads, CAC alone is incomplete and LTV alone is theory. Only together do they give you the right decision: where your next budget goes.
Questions
What is a "good" ROAS?
It depends on your margin; a high-margin product profits at a lower ROAS than a thin-margin one.
How do I estimate LTV as a new business?
Start with a conservative estimate based on the product, and update it quarterly from real data.
Should I trust platform numbers?
Use them for direction, and always reconcile them with actual sales in your own system.