The Real Economics Behind LTV:CAC
The Real Economics Behind LTV:CAC
For every eCommerce founder chasing scale, three letters decide whether growth compounds—or collapses: LTV:CAC.
It’s one of those metrics every brand claims to track, but very few actually understand. This guide breaks down the real economics behind LTV:CAC, how to calculate it step by step using Shopify, and how it connects directly to your business’s operational success.
1. The Fundamentals: What LTV:CAC Really Means
LTV (Lifetime Value) measures how much a customer spends with you over time—beyond their first purchase.
CAC (Customer Acquisition Cost) measures how much it costs to acquire that customer.
Together, they answer one question:
“For every dollar I spend to acquire a customer, how much do I get back—and how fast?”
- 1:1 → Breaking even
- 2:1 → Growing, but margins are thin
- 3:1+ → Scaling efficiently
LTV:CAC isn’t just a marketing metric—it’s the business’s heartbeat.
2. Why Most Brands Misuse the Metric
Most brands obsess over ROAS or MER, focusing on short-term performance and ignoring what happens after the first purchase. The result? They buy the wrong customers—those who don’t come back.
The real goal is not just cheaper acquisition but smarter acquisition: acquiring customers who repeat, engage, and grow their value over time.
3. How to Calculate LTV:CAC (Step-by-Step Using Shopify)
Step 1. Get Your Core Data
Export data from Shopify → Analytics → Reports to capture:
- Total marketing spend (from Meta, Google, etc.)
- Number of new customers
- Orders per customer (repeat purchases)
- Average order value (AOV)
- Gross margin %
- Variable costs per order (shipping, 3PL, fees, discounts)
Step 2. Calculate CAC
Formula: CAC = Total Marketing Spend ÷ Number of New Customers
Example: $60,000 ÷ 3,000 = $20 CAC
Step 3. Calculate Contribution Margin
Formula: (AOV × Gross Margin %) – (Shipping + 3PL + Payment Fees + Returns + Discounts)
Example: AOV $80 × 65% = $52 gross profit – $18.50 variable costs = $33.50 contribution margin
Step 4. Calculate LTV
Use Shopify order data to find the average number of purchases per customer in 3, 6, or 12 months.
Formula: LTV = Contribution Margin × Average Orders per Customer
Example: $33.50 × 1.8 = $60.30 LTV
Step 5. Combine LTV and CAC
Formula: LTV:CAC = LTV ÷ CAC
Example: $60.30 ÷ $20 = 3.02 : 1
Step 6. Measure Payback Period
Payback = time it takes for cumulative contribution to exceed CAC. Healthy targets:
- Fast-moving products (beauty, accessories): 30–60 days
- High AOV / slower repurchase (home, luxury): 90–120 days
4. How LTV:CAC Rolls Up to Business Performance
Acquisition → CAC
- Better creative & offer → higher CTR → lower CAC
- Improved landing UX → higher conversion → lower CAC
Product & Merchandising → AOV + Margin
- Bundles, upsells, and cross-sells increase AOV
- Smart pricing & discounting protect margins
Customer Experience → Retention + LTV
- Fast shipping, great packaging, and clear communication shorten repurchase cycles
- Exceptional support and community increase loyalty
Finance & Ops → Unit Economics
- Contribution margin funds CAC payback and profit
- Payback speed guides how aggressively you can scale
5. Case Study: Pop Ups Brand
Andrea and Alexandra had an incredible product and glowing customer feedback, but low volume. They knew they were onto something—they just needed to get it in front of the right audience.
We activated every stage of the buyer’s journey—from acquisition to re-purchase—using storytelling, strategic funnels, and data-driven retention flows.
- LTV:CAC doubled within six months
- Repurchase cycle shortened by 40%
- AOV increased by 18%
- All achieved without increasing ad spend
By aligning creative, data, and systems, Pop Ups transformed from a promising idea into a scalable growth engine.
6. Turning LTV:CAC Into a Growth System
- Track by Cohort — use Shopify + Meta or Triple Whale.
- Review Weekly — CAC, AOV, repeat rate, contribution margin.
- Diagnose Monthly — CAC ↑? Fix creative or offer. LTV ↓? Fix retention or CX. Payback > 90 days? Improve margin or lower CAC.
- Tie KPIs to Cash Flow — Target LTV:CAC ≥ 3:1 and payback < 90 days.
When your team starts thinking this way, every decision—from ad creative to fulfillment—directly impacts growth efficiency.
7. The Bottom Line
LTV:CAC bridges marketing metrics and financial health. It shows whether growth is sustainable, efficient, and cash-positive.
Once you understand it, you’ll know how fast you can scale, how much you can spend, and which levers to pull next. That’s the real economics of eCommerce growth—and why the brands that master LTV:CAC don’t just grow. They scale—profitably and predictably.
Written by Andres Szkolnik, founder of If This Then Data (ITTD)—a hands-on growth consultancy helping Shopify and DTC brands scale through strategy, execution, and data.