How to Measure LTV, CAC, and Funnel Profitability

Here’s a practical way to measure these metrics together.

1) Measure LTV (Lifetime Value)

LTV estimates how much revenue or gross profit one customer generates over their relationship with your business.

A common formula is:

LTV = ARPU × Gross Margin × Average Customer Lifetime

Where:

• ARPU = average revenue per user/customer
• Gross Margin = revenue left after direct cost of goods/services
• Average Customer Lifetime = how long a customer stays active

For subscription businesses, another common version is:

LTV = ARPU × Gross Margin ÷ Churn Rate

Example

If:

• ARPU = $25/month
• Gross margin = 60%
• Monthly churn = 3%

Then:

LTV = 25 × 0.60 ÷ 0.03 = $500

2) Measure CAC (Customer Acquisition Cost)

CAC is the total cost of acquiring a new customer.

CAC = Total Sales & Marketing Spend ÷ Number of New Customers Acquired

Include relevant costs such as:

• Ad spend
• Sales team salaries and commissions
• Marketing tools/platform costs
• Agency fees
• Campaign production costs

Example

If:

• Sales + marketing spend = $100,000
• New customers acquired = 400

Then:

CAC = 100,000 ÷ 400 = $250

3) Calculate the LTV:CAC Ratio

This tells you how much value you get back for each dollar spent acquiring a customer.

LTV:CAC Ratio = LTV ÷ CAC

Example

Using the figures above:

LTV:CAC = 500 ÷ 250 = 2.0

This means each customer generates about 2x the cost to acquire them.

4) Measure Funnel Profitability

To measure whether your funnel is profitable, track performance by stage and channel.

Useful funnel metrics

• Traffic → Lead conversion rate
• Lead → Opportunity conversion rate
• Opportunity → Customer conversion rate
• Cost per lead
• Cost per customer
• Revenue per channel
• Gross profit per channel

Basic funnel profitability formula

Funnel Profit = Revenue Attributed to Funnel − Total Funnel Spend

Or, if you want a gross profit view:

Funnel Gross Profit = (Revenue × Gross Margin) − Total Funnel Spend

Example

If a campaign generates:

• Revenue = $80,000
• Gross margin = 60%
• Total spend = $30,000

Then:

Gross profit = (80,000 × 0.60) − 30,000 = $18,000

That means the funnel is profitable after direct costs and acquisition spend.

5) What good looks like

A common benchmark is:

• LTV:CAC > 3:1 → generally healthy
• LTV:CAC around 1:1 → break-even territory
• LTV:CAC below 1 → acquisition cost may be too high

6) Best practice for analysis

To get useful insights:

• Break metrics down by channel
• Compare paid vs organic
• Track by campaign, audience, product, and cohort
• Review monthly or quarterly
• Watch both LTV and CAC, not just one

7) Simple dashboard structure

You can build a dashboard with these columns:

• Channel
• Spend
• Leads
• Customers
• CAC
• ARPU
• Gross Margin
• LTV
• LTV:CAC
• Revenue
• Gross Profit
• Funnel Conversion Rates

If you want, I can also give you:

1. a spreadsheet template structure, or
2. a worked example with real funnel stages.