CAC and LTV: the two figures that determine how much you can spend on a customer

CAC is the price you pay to win one new customer: the entire advertising and marketing spend, divided by the number of new customers, not by all orders. LTV is the profit that customer brings over the whole period of your relationship, including repeat purchases. The healthy ratio for most of the businesses I run is LTV at least three times higher than CAC. Below 2:1, growth eats the cash, because every new acquisition costs more than it returns. Above 5:1 it usually means you are not spending enough and are leaving the market to your competitors. That is why first-order ROAS is a weak judge: it measures a single transaction, while the budget decision is made at customer level.

My name is Hristiyan Panov — a performance marketing consultant with over 5 years’ experience and over €2 000 000 managed advertising budgets for over 90 companies on Google and Meta. Below is an explanation of how to calculate these two figures without unnecessary complexity, and how they influence your budgeting decisions.

How is the CAC calculated correctly?

CAC = total marketing expenditure / number of new customers for the same period.

The numerator and the denominator must cover the same period. If you are calculating the spend for August, you count the new customers from August, not from the last three months.

Two clarifications that significantly alter the figure:

• New customers, not orders. If repeat buyers go into the denominator, CAC looks artificially low. The distinction is made by email or phone in the order system, not by cookie or device — the same person who ordered from a phone and from a laptop is one customer.
• Total expenditure, not just advertising expenditure. Fees, tools, creative output. Otherwise, you’re calculating a price that doesn’t exist.

Cancelled and returned orders come out of the denominator. If they stay in, CAC drops on paper precisely in the months with the most returns, and the budget decision starts from a distorted base. That is why the number is recalculated monthly, on closed data, not on the fly during the month.

How do you calculate LTV when you don’t have several years’ worth of data?

You don’t need years. A practical approach is: average profit per order × average number of orders per customer A 12-month observation period is a sufficient timeframe for most Bulgarian businesses.

It is calculated by cohort. You take the customers with a first purchase in a given month and count all their orders from then until today. Customers who came in last week have not had time to show repeat behaviour — if you mix them with older ones, the average falls for no reason.

Note the word “profit”. LTV calculated on revenue is a nice number with no use. If your margin is 30%, an order of BGN 200 brings BGN 60, not 200.

Profit includes cost of goods, delivery at your expense, payment and cash-on-delivery fees, and the loss from returned parcels. These items eat percentage points that later decide whether the ratio to CAC comes out above three times or stays below two.

Why is the ROAS from the first order misleading?

Because it measures a single moment in an ongoing relationship. A shop with a return rate of 2.0 on the first purchase and three repeat customers out of four is far more robust than a shop with a return rate of 4.0 and no repeat customers.

The check is concrete. Take the customers with a first purchase from 12 months ago and compare the return from their first order alone with the return over the whole period. If the two numbers match, there is no repeat purchasing and growth rests entirely on new people. If the second is noticeably higher, the first order is an entry point, not the deal.

The second reason is reporting. ROAS in the account is revenue attributed by click or impression and changes with the attribution window. MER — total revenue divided by total ad spend — does not depend on windows and works as a control figure.

That is why the break-even threshold is the lower bound for today, while LTV against CAC is the decision on how aggressively you can grow.

What is the difference between CAC and order price?

The order value takes everything into account. CAC only takes into account a new customer’s first order. In a business with a high repeat purchase rate, the two figures differ significantly — and it is precisely this difference that leads most business owners to underestimate how much they can invest.

Meta and Google Ads do not know which customers are new. This figure comes from your ordering system, not from the advertising platform.

How quickly should the CAC be returned?

The payback period is more important than the ratio itself when working capital is limited. If the CAC is recouped within 30 days, you can reinvest every month. If it takes 9 months to recoup, growth will require external cash, no matter how good a 4:1 ratio might seem.

It is calculated as CAC divided by the average monthly profit from one customer. The number shows how many times a year the same lev can be turned back into advertising without you drawing money from outside.

It is shortened in three ways: higher profit from the first order, an earlier second order and faster cash receipt. Cash on delivery and instalment payment lengthen the period without touching the margin — the goods and the advertising are paid for today, while the revenue arrives weeks later.

That is why two identical ratios can mean different things: one returns the money in a month and allows a monthly rhythm of reinvestment, the other returns it in half a year.

How does this affect the budget?

The ratio is not a reporting number but a decision on how much you can pay for a new customer.

• If the LTV/CAC is below 2, the problem is rarely down to the advertising. Look at the margin, the price or the retention rate.
• Between 2 and 3 the system works, but with no cushion. Here you raise the average order and work on the second purchase before touching the budget.
• If it is between 3 and 4, the system is sound. Scale in increments up to 20%.
• If it’s above 5 — you can probably afford to pay more per customer and capture market share before your competitor does.

After each step, wait for the data period to fill before taking the next one. The metric to watch is CAC by new customers and the payback period, not the overall return in the account — it is lifted by repeat purchases and hides the rising cost of a new customer.

FAQ — Frequently Asked Questions about CAC and LTV

How do I measure LTV for a service rather than a shop?

Based on the average contract value × the average number of renewals. For B2B services, the contract term is usually 24 months.

Is the discount included in the CAC?

It affects the margin. A discount on the first order reduces the profit from that order and extends the payback period.

How do I track new customers on advertising platforms?

Once you’ve sent them the signal. Both Google and Meta recognise the distinction between new and returning customers if the website sends this information — in which case, your optimisation can target new customers specifically.

What is a normal CAC for Bulgaria?

There is no one-size-fits-all figure. It depends on the margin and the average order value. The same CAC of 30 BGN is excellent with a margin of 80 BGN but a disaster with a margin of 20 BGN.

How often are they recalculated?

CAC — monthly. LTV — quarterly, because it changes slowly.

Conclusion

Return on investment answers the question of whether today’s campaign is profitable. CAC and LTV answer the question of how big the business can become and at what rate. Without the latter, budget decisions remain mere guesswork, even when the former looks promising.

If you’re not sure how much you can afford to pay for a new customer, start by getting an independent analysis of the figures.

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