1) If you’re trying to find out what churn rate [or conversion rate or ARPA or … ] is acceptable for your business, start from LTV/CAC and work backwards from there.

2) As a rule of thumb, a good LTV/CAC ratio is 4. There’s no science behind that number, but if your LTV/CAC ratio is 4 it means that after spending 1x your CAC on CAC (duh) and 1–2x on G&A and R&D you have 1–2x to cover the costs of capital and generate profits, with some margin for error.

3) Keep in mind that your LTV for current or future customers is always an estimate based on the behavior of past customers. You won’t be able to measure your CAC with 100% precision, either, because of various kinds of tracking errors and attribution uncertainties. Therefore you have to work with simplifications, conservative assumptions and leave a large buffer for error.

The simple chart above showed that if you’re aiming for a 4% total conversion rate, you’ll have to land somewhere on or above the green curve. Similarly, you can imagine a 3-dimensional space with ARPA, churn rate, and CAC as the axes. Somewhere in that space is a body that represents a CAC/LTV ratio of 4 or higher. We can call that the Goldilocks Zone of SaaS Metrics¹⁾.

[See original article for deeper dive]