CAC is customer acquisition cost: the total amount spent on marketing and sales in a given period, divided by the number of new customers won in that period. LTV is lifetime value: the total profit a customer leaves you over the course of their relationship with you. The two are read together; if you win a customer with an LTV of 1,800 TRY for 600 TRY, every customer brings back three times their acquisition cost. Ad ROAS looks at a single order; CAC and LTV look at the whole customer.
How to Calculate CAC
A store that spends 80,000 TRY on ads in a month, pays its agency 12,000 TRY and gives 8,000 TRY of welcome discounts on first orders, and wins 250 new customers that month, has a CAC of 400 TRY: 100,000 ÷ 250. Count only the ad spend and you get 320 TRY; this smaller figure can be tracked separately as "paid CAC", but for business decisions the value that includes every cost is the one that counts.
Two more distinctions are useful. Blended CAC adds customers arriving organically and by referral to the denominator; it shows the total efficiency of marketing but hides the effect of advertising. CAC by channel separates the cost of a new customer from Google Ads from one from Meta; this is what the budget-shifting decision needs. The difficulty with calculating by channel is attribution: which channel does a customer belong to who made first contact on Instagram and bought after searching your brand name on Google. There is no single right answer; writing down which rule you chose and sticking to it is better than changing the rule mid-month.
How to Calculate LTV
The simplest formula has three factors:
Take a children's clothing store where the average order is 900 TRY, customers place 2.5 orders a year on average and stay customers for about two years. Revenue-based LTV is 4,500 TRY. With a 40% gross margin, profit-based LTV is 1,800 TRY. This store's 400 TRY CAC means a 4.5-fold return against profit-based LTV.
The "customer lifetime" factor is where most mistakes happen. A new store has no two years of customer lifetime data; you estimate, and the estimate is usually optimistic. A more honest route is to use churn rate instead of lifetime: if 50% of customers do not come back each year, average lifetime is 1 ÷ 0.50 = 2 years. Churn rate can be calculated from six months of data and corrects itself over time.
The LTV/CAC Ratio: How Much Can I Spend?
The real job of the two metrics is their ratio. The widely accepted rule of thumb is that profit-based LTV should be at least three times CAC. This is not a law but a practice that spread from software companies; since margin and repeat rates vary so much by sector in e-commerce, deriving your own threshold from your own data is sounder. Still, it shows the direction:
| LTV / CAC | What it means | What to do |
|---|---|---|
| Below 1 | Every new customer writes a loss | Acquisition is not stopped, but the channel and discount structure change |
| 1 – 2 | Pays for itself, does not fund growth | Work that raises repeat purchase moves up the list |
| Around 3 | Healthy; growth can be invested in | Budget is raised, payback period is watched |
| Above 5 | Marketing may be underspending | Acquisition budget is raised before competitors take the customers |
A high ratio is not always good news: a store seeing a 6-fold LTV/CAC may be leaving customers it could win to its competitors. Whether the marketing budget is "too much" is decided by this ratio alone; ROAS cannot tell you.
Payback Period
LTV is a gain that accumulates over two years; CAC is paid today. Cash funds the time in between. Payback period tells you when a customer's profit-based contribution covers CAC: with a 400 TRY CAC and 360 TRY of gross profit per order (900 TRY × 40%), a 40 TRY gap remains after the first order and closes with the second. For a customer placing 2.5 orders a year, that is about five months on average. For a business with tight cash flow this period can be more decisive than the LTV/CAC ratio; a shiny LTV promising an 18-month payback means an 18-month hole in the till.
The Cohort View: By Customer Group, Not by Month
Calculating CAC and LTV by calendar month is easy but misleading: customers won in November are worth something different from those won in March, because a customer who came for a discount returns less often. The cohort view follows each month's new customers as a separate group and shows that group's total profit after 3, 6 and 12 months. That allows a comparison like "the November cohort's CAC was 520 TRY and it left 480 TRY of profit in six months; the March cohort came in at 380 TRY and left 700 TRY in six months". Which period, which campaign and which discount brought lasting customers only shows up in this table.
Deriving CAC and LTV From Your Data
- Pull orders by customer from the store platform; each customer's first order date gives the "new customer" definition
- Add up all marketing expenses for the same period: ads, agency, tools, welcome discounts
- Calculate CAC monthly; a single month fluctuates, so watch a three-month moving average
- Work out customers' repeat order rate within 6 and 12 months; churn rate derives from this
- Calculate LTV on a profit basis; margin varies with the product mix
- Deduct returns: a returned order comes out of LTV, return shipping goes to operating expenses, not CAC
The data for this calculation sits scattered in two places: spend in the ad panels, customers and orders in the store platform. AdsLuma combines ikas or Shopify order data with ad spend for the same period; the split between new and returning customers is made from order history, and CAC by channel appears in the panel. The profitability view we described in the ROI post steps out of the one-month window once LTV is added and sees the whole customer.
Frequently Asked Questions About CAC and LTV
What is CAC and how is it calculated?
Customer acquisition cost. Total marketing and sales expenses in a period are divided by the number of new customers won in that period. For 100,000 TRY of expenses and 250 new customers, CAC is 400 TRY.
How is LTV calculated?
Average order value, orders per year and customer lifetime are multiplied; for profit-based LTV the result is multiplied by gross margin. If customer lifetime is unknown, the inverse of the annual churn rate is used.
What should the LTV/CAC ratio be?
The common rule of thumb is profit-based LTV at three times CAC. It varies by sector and margin; below 1 means every customer writes a loss, far above 5 may mean marketing is underspending.
Are CAC and CPA the same thing?
No. CPA is cost per conversion, and every order or form is a conversion; CAC counts only new customers and includes acquisition expenses beyond advertising. In stores with a high repeat order rate, CAC comes out noticeably higher than CPA.
AdsLuma combines ad spend with your store's order history; CAC by channel and customer value on one screen, with the new and returning customer split.
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