CAC, LTV, ROAS and CTR: marketing metrics explained with formulas
Marketing metrics explained: formulas for CTR, ROAS, CAC and LTV, a worked rupee example, and why one business can show an LTV to CAC of 3.2 or 12.0.
Marketing metrics are ratios that turn campaign data into decisions. CTR is clicks divided by impressions, CPC is cost per click, CPA is cost per conversion, ROAS is conversion value divided by ad spend, CAC is sales and marketing cost divided by new customers, and LTV is what a customer is worth over a lifetime. Each answers a different question and misleads in a different way.
What are the main marketing metrics and their formulas?
Ten formulas cover most campaign reviews. The table gives each formula, the question it answers and where the definition comes from. Employers expect fluency: a Meesho performance marketing posting from April 2026 lists CPM, CTR, CAC, reach, frequency and attribution, and a Paytm posting from May 2026 describes acquisition budgets judged on CPA, CAC, funnel conversion and payback period.
| Metric | Formula | Question it answers | Definition from |
|---|---|---|---|
| CTR | Clicks ÷ impressions | How often do people who see an ad or listing click it? | Google Ads Help |
| CPC | Total cost of clicks ÷ number of clicks | What does one click cost? | Google Ads Help |
| CPM | Cost ÷ impressions × 1,000 | What does a thousand impressions cost? | Google Ads Help (pay per thousand impressions) |
| Conversion rate | Conversions ÷ eligible interactions such as clicks | How often does a click end in the wanted action? | Google Ads Help |
| CPA | Total cost ÷ conversions | What does one conversion cost? | Google Ads Help |
| ROAS | Conversion value ÷ ad spend | How much revenue does each rupee of ads bring back? | Google Ads Help |
| ROI | Net income ÷ cost of investment | What profit does the spend return? | Corporate Finance Institute |
| CAC | Sales and marketing expenses ÷ new customers | What does it cost to win one customer? | Corporate Finance Institute |
| LTV | Average order value × annual purchases × lifespan in years, times gross margin for a profit view | What is a customer worth over time? | Shopify |
| LTV to CAC | LTV ÷ CAC | Does a customer return more than they cost? | David Skok |
Google Ads shows ROAS as a percentage: 500% means 5 units of conversion value for every 1 unit of ad spend. For subscription businesses LTV is built differently, with customer lifetime equal to 1 divided by the churn rate.
How do the metrics work in one worked example?
A hypothetical Pune tea brand ran paid ads for one month with the figures in the first table. The second table shows each metric, calculated with the formulas above.
| Input | Value |
|---|---|
| Impressions | 10,00,000 |
| Clicks | 20,000 |
| Ad spend | Rs 2,00,000 |
| Orders (conversions) | 500, of which 400 came from new customers |
| Average order value | Rs 1,200 |
| Other sales and marketing cost | Rs 1,00,000 |
| Gross margin | 40% |
| Purchases per customer a year; lifespan | 2.5; 2 years |
| Metric | Calculation | Result |
|---|---|---|
| CTR | 20,000 ÷ 10,00,000 | 2.0% |
| CPC | Rs 2,00,000 ÷ 20,000 | Rs 10 |
| CPM | Rs 2,00,000 ÷ 10,00,000 × 1,000 | Rs 200 |
| Conversion rate | 500 ÷ 20,000 | 2.5% |
| CPA | Rs 2,00,000 ÷ 500 | Rs 400 |
| Revenue and ROAS | 500 × Rs 1,200 = Rs 6,00,000; ÷ Rs 2,00,000 | ROAS 3.0 |
| Gross profit | Rs 6,00,000 × 40% | Rs 2,40,000 |
| ROI on ad spend | (Rs 2,40,000 minus Rs 2,00,000) ÷ Rs 2,00,000 | 20% |
| CAC, ads only | Rs 2,00,000 ÷ 400 | Rs 500 |
| CAC, fully loaded | (Rs 2,00,000 + Rs 1,00,000) ÷ 400 | Rs 750 |
| LTV, revenue basis | Rs 1,200 × 2.5 × 2 | Rs 6,000 |
| LTV, margin basis | Rs 6,000 × 40% | Rs 2,400 |
The figures are invented for illustration and are not market data.
What is a good ROAS?
No universal good ROAS exists, because the break-even point depends on margin. Google makes the same point about CTR, saying a good CTR is relative to what is advertised and on which networks. For ROAS the useful reference is break-even ROAS, which is 1 divided by the gross margin: 1 ÷ 0.40 is 2.5 for the tea brand. A ROAS of 3.0 clears that line by a small gap, and a business with a thinner margin needs a higher ROAS to break even.
Google Ads suggests setting a Target ROAS from past actual ROAS and warns that a target set too high may limit traffic. It also needs a value entered for each conversion, so ROAS is only as accurate as those values.
What is the difference between ROAS and ROI?
ROAS compares conversion value with ad spend, while ROI compares profit with the full cost of an investment. ROAS says nothing about margin, returns or other costs, and it depends on the value entered for each conversion. In the example, a ROAS of 3.0 sounds healthy, yet after the 40% gross margin and the ad spend the brand keeps Rs 40,000, an ROI on ad spend of 20%. Other costs such as salaries would reduce that further.
Google Ads describes its conversion value per cost column as an estimate of return on investment. It is a revenue-type ratio, not a profit ratio, so the two names should not be used interchangeably in reports.
What is the LTV to CAC ratio?
The LTV to CAC ratio divides the lifetime value of a customer by the cost of acquiring one. In his SaaS Metrics 2.0 guide, David Skok wrote that the best SaaS businesses have a ratio higher than 3, and that many recover CAC in 5 to 7 months. He called these guidelines and said there are situations where it makes sense to break them. His own LTV is built on gross profit per customer, not revenue, so the margin-based rows below are the closer comparison.
The ratio changes sharply with the definitions used. The table repeats the tea brand's figures under four combinations.
| LTV basis | CAC basis | LTV to CAC |
|---|---|---|
| Revenue, Rs 6,000 | Ads only, Rs 500 | 12.0 |
| Revenue, Rs 6,000 | Fully loaded, Rs 750 | 8.0 |
| Margin, Rs 2,400 | Ads only, Rs 500 | 4.8 |
| Margin, Rs 2,400 | Fully loaded, Rs 750 | 3.2 |
The same business reports anything from 3.2 to 12.0. A team should state which LTV and which CAC it uses before comparing against any target.
Which metric answers which question?
Match the metric to the decision, and read it with its blind spot in mind.
| Question | Metric | Misleads when |
|---|---|---|
| Is the ad catching attention? | CTR | Platforms define CTR differently; high CTR can sit beside low sales |
| Is traffic affordable? | CPC, CPM | Cheap clicks or impressions come from the wrong audience |
| Does the page turn clicks into action? | Conversion rate | Different tools count different interactions |
| Is each result affordable? | CPA | Treats a small order and a large order as equal |
| Does ad spend bring revenue back? | ROAS | Ignores margin; blends new and repeat buyers |
| Does spend bring profit back? | ROI | Depends on which costs are counted |
| What does a new customer cost? | CAC | Ads only or fully loaded gives different answers |
| Is a customer worth the cost? | LTV, LTV to CAC | Rests on assumed lifespan and purchase frequency |
Where does each metric mislead?
Every metric above can be right and still lead to a wrong decision. Three cases come up most often.
Blended ROAS hides new customers. In the example, 100 of the 500 orders came from existing customers. The 400 new-customer orders brought Rs 4,80,000 against Rs 2,00,000 of spend, a ROAS of 2.4, which is below the break-even 2.5 on first orders. The blended figure of 3.0 looked comfortable, but new customers paid back only on later orders. That reading assumes each new customer placed one order in the month.
CTR is not comparable across platforms. LinkedIn defines CTR as clicks divided by impressions, YouTube's impressions click-through rate is how often viewers watched after seeing a thumbnail, and Search Console's CTR is clicks divided by impressions in Google Search results.
Organic CTR also moves with the results page. Pew Research Center found that US users clicked a result in 8% of visits with an AI summary against 15% without in March 2025, so a falling CTR can reflect the page layout and not the content. The background is in AEO vs GEO vs SEO, and Search Console is one of the SEO tools that report CTR.
Timing also distorts. Google Ads reports primary conversion columns by the date of the click, not the date of the conversion, so a campaign that has just ended can look weaker until late conversions arrive. LTV, finally, rests on an assumed lifespan and purchase frequency, and Shopify advises estimating lifespan from customer groups with enough purchase history.
Where do these metrics fit in marketing training?
Marketing metrics connect campaign activity to budget decisions, which is the link between marketing and finance. The Advanced Programme in Strategic Marketing Excellence, IIM Lucknow is a live online programme from IIM Lucknow, taught by IIM Lucknow's marketing faculty with industry masterclasses and a campus immersion, covering marketing foundations, sales and distribution, competitive strategy, digital marketing, marketing finance, AI and predictive analytics in marketing, and a capstone strategy project.
Its modules include Marketing P&L and Investment Decisions and AI and Predictive Analytics in Marketing. Beginners can start with the fundamentals of digital marketing.
Frequently asked questions
What is a good ROAS?
A good ROAS is one above break-even ROAS, which is 1 divided by gross margin. A business with a 40% gross margin breaks even at a ROAS of 2.5. No universal benchmark exists, because margins, order values and repeat purchase rates differ by business. ROAS also ignores costs other than ad spend.
What is the LTV to CAC ratio?
The LTV to CAC ratio is customer lifetime value divided by customer acquisition cost. David Skok's guideline for SaaS is a ratio above 3, with LTV built on gross profit per customer. It is a guideline, not a rule, and the result depends on whether LTV is on revenue or margin and whether CAC includes salaries.
What is the difference between ROAS and ROI?
ROAS is conversion value divided by ad spend, a revenue ratio for ads. ROI is net income divided by the cost of an investment, a profit ratio. A campaign can have a ROAS of 3.0 and a modest ROI once margin and other costs are subtracted, as the tea brand example shows.
How do you calculate CAC?
CAC is sales and marketing expenses divided by the number of new customers in the same period. Corporate Finance Institute counts advertising spend, commissions and bonuses, salaries of marketers and sales managers and related overheads. Teams that count ad spend only report a lower CAC, so the method should always be stated.
What is the CTR formula?
CTR is clicks divided by impressions, written as a percentage. Google Ads gives the example of 5 clicks on 100 impressions as a 5% CTR. Search Console uses the same formula for results in Google Search. Platforms such as YouTube define their own click-through rates, so compare CTR only within one platform.
What is the difference between CPA and CAC?
CPA is the cost of one conversion from advertising, and a conversion can be any wanted action such as a sign-up or an order. CAC is the cost of winning one new customer and can include sales and marketing costs beyond ads. One customer may need several conversions, and an order can come from an existing customer.
Next step
The Advanced Programme in Strategic Marketing Excellence, IIM Lucknow covers marketing finance and investment decisions alongside digital marketing and AI in marketing, in live online classes. To pair these metrics with tools that report them, read the guide to the best SEO tools for 2027.