When I started advising SaaS startups, questions about CAC (Customer Acquisition Cost) and LTV (Lifetime Value) showed up at every coffee meeting and stand-up. The sheer volume of advice on these metrics sometimes overwhelmed founders. What counts as a “good” CAC? Is your LTV high enough?
These aren’t just accounting details—they are the core of SaaS growth. If you understand them deeply and tailor your strategy with precision, the results stand out. I want to show you how to set realistic, winning targets for CAC and LTV as your SaaS evolves and scales. This is exactly the kind of data-driven approach Venture Compass uses to boost SaaS companies’ acquisition and sustainable growth through performance marketing.
The basics: Why CAC and LTV matter
Before you can set the right targets, you need clarity on what CAC and LTV really measure in the SaaS business model. Over the years, I’ve seen these terms misunderstood countless times, even by experienced founders.
- CAC is the average spend required to acquire a single paying customer. It includes all costs—ads, sales team, onboarding, the works—divided by how many new customers you acquired in the same period.
- LTV shows how much revenue (net of costs) a typical user brings during their full relationship with your service. It reflects expansion, retention, and churn, offering a long-term view.
If your CAC is low and LTV high, there’s headroom to scale. If not, you’ll burn cash quickly or struggle to grow. This isn’t theoretical: I’ve seen SaaS startups double MRR (Monthly Recurring Revenue) in under a year by fixing just one of these levers.
The right balance between CAC and LTV turns growth into something predictable.
How CAC and LTV shape SaaS growth
Every SaaS company, whether bootstrapped or VC-backed, faces a similar decision: how much can you spend to win a customer and still profit? The only way to answer is through the ratio of LTV to CAC. I like to step back and look at three rules that often guide my advice:
- Your LTV usually needs to be at least 3x your CAC for healthy growth.
- Most SaaS should aim to recover their CAC in under 12 months (the “payback period”). Less is often better.
- If you consistently exceed that ratio or shorten payback, you have room to invest in new channels or increase budget.
But here’s my honest opinion: there is no universal CAC or LTV number that suits every SaaS. Your market, price point, customer segment, and sales cycle will shape your targets.
Mapping your numbers: A step-by-step process
To set ideal CAC and LTV goals, I follow the steps below with clients at Venture Compass. It’s practical, not guesswork, and starts with a deep understanding of your Ideal Customer Profile (ICP):
- Map your ICP and focus only on high-fit segments. Low-LTV or high-churn customers can distort your numbers quickly.
- Calculate your real CAC monthly. Go beyond ad spend—include everything related to acquisition.
- Figure out LTV for each key segment. Use actual churn and expansion rates, not just averages or forecasts.
- Benchmark against your growth stage. For early growth, sometimes a higher CAC is justified if LTV is projected to grow with usage.
- Adjust based on your sales cycle. Enterprise SaaS can handle longer CAC payback if LTV is much higher.
With these clear measurements, you avoid vanity metrics and ensure every campaign—across Google, Meta, LinkedIn, or Reddit—supports true business goals. That’s a fundamental approach in campaigns we run at Venture Compass.
Common mistakes in defining CAC and LTV
After years studying SaaS growth, I see founders most often slip up in three areas:
- They underestimate CAC by ignoring hidden costs, like founder time or onboarding.
- They overestimate LTV by assuming retention is perfect, or upsells always succeed.
- They set the same targets for all segments, even though each segment has unique characteristics.
I remember a client who launched a paid acquisition push, only to see CAC double because they didn’t count the cost of expanded sales support. When we recalculated, their payback period shot up to 18 months, and they had to quickly adjust their strategy to focus on the highest-value ICP segments—something every SaaS team should prepare to do as campaigns scale. If you’re mapping your growth initiatives, resources in SaaS growth strategy and performance marketing can help avoid these traps.
How to set the right CAC for your SaaS business
Setting CAC goals that foster growth isn’t just about choosing the lowest possible number. In my experience, it’s more about tolerance and risk appetite at your current stage. Here’s how I typically advise SaaS companies:
- Calculate your current CAC per channel and compare with average deal value.
- Look at your growth targets for MRR. How many new customers do you need, and what is your acquisition budget allowance?
- Factor in the competitive landscape. If your market is crowded, CAC may be temporarily higher, but efficient channels can change this quickly.
I usually recommend setting a “target CAC” and a “maximum CAC”—the latter is what you can accept in a stretch period to boost market share if LTV supports it. Keeping your average CAC disciplined turns paid acquisition into a growth engine, and you can track your progress through dashboards and data-driven workflows such as those explained indata-driven SaaS growth methods.
How to define strong LTV targets
LTV is trickier since it looks ahead, not back. In my work with SaaS startups, these tactics always bring more clarity:
- Use segmented retention and expansion data, not only global churn.
- Model different upgrade and pricing paths for likely customers, by ICP.
- Revisit your LTV calculations as your service offerings evolve—especially after product updates or pricing changes.
The more granular your LTV model, the better you target acquisition and retention efforts. Keeping LTV estimates accurate means regularly aligning with marketing, product, and sales—something we build into campaigns at Venture Compass.
Fine-tuning as you scale up
As your SaaS business matures, your approach to CAC and LTV needs to follow. This is where data-driven experimentation shines:
- Test campaigns in new channels—like Reddit or LinkedIn—comparing CAC and downstream lifetime value from each.
- Double down on ICP segments where CAC stays lowest and LTV is highest. Document every insight for your team.
- Give yourself room to raise CAC temporarily if you are unlocking premium ICPs or upsell tiers with much greater LTV.
My experience with SaaS companies scaling with Venture Compass is clear: tight feedback loops, experimentation, and regular analysis of acquisition and retention are the engine for sustainable growth. Adapting quickly is easier if you document wins and losses from each test, whether you focus on paid acquisition or broader startup strategy.
Setting CAC and LTV benchmarks: The takeaways
Setting the right CAC and LTV is a journey—one shaped by your SaaS's stage, market, and ICP. If you make these numbers your guide, growth stops being a guessing game and starts becoming deliberate.
In my work with Venture Compass, I always circle back to these points:
- Model CAC and LTV by segment, keep your calculations honest.
- Adjust as you gather more data—no number is set in stone.
- Link every campaign, channel, and investment to these benchmarks.
If you want to see how dedicated, data-driven acquisition campaigns can help you hit growth targets, I invite you to book a free call. Let us map opportunities and build a custom plan for your SaaS. Start your journey with Venture Compass and experience sustained growth that avoids vanity targets.
Frequently Asked Questions
What is CAC in SaaS?
CAC (Customer Acquisition Cost) in SaaS refers to the average amount of money your company spends to gain a new paying customer. It includes advertising, sales, onboarding, and any cost directly tied to acquiring clients during a chosen period.
What does LTV mean for SaaS?
LTV (Lifetime Value) for SaaS is the total revenue you expect from a customer over the entire period they use your service. It takes into account churn, expansion, and ongoing usage patterns.
How to calculate CAC and LTV?
To calculate CAC, divide all acquisition-related costs by the number of new customers acquired in that period. For LTV, multiply your average monthly revenue per user by the average customer lifespan (in months), then adjust for retention and churn rates for better accuracy.
Why are CAC and LTV important?
These metrics define how much you can spend to grow and still be profitable in the long term. They highlight when to scale, which users to target, and help prevent wasted spend.
How to improve LTV in SaaS?
The best way to improve LTV is by enhancing your product’s value, reducing churn, and expanding usage through upsells or cross-sells. High-touch onboarding, customer success programs, and frequent product improvements keep users engaged. Continually segment customers and adjust offerings, a habit I encourage for every SaaS team.
