LTV:CAC Ratio
The LTV:CAC ratio compares lifetime value of an acquired merchant relationship against customer acquisition cost — the foundational unit-economics ratio determining MCA business model sustainability and growth investment capacity.
Why This Matters
LTV:CAC determines whether an MCA business is investing or destroying capital. A 3:1 ratio means each $1 of acquisition spend produces $3 of merchant lifetime value — healthy and growth-supportive. A 1:1 ratio means break-even at best, and any operational expense or default loss tips the equation negative. MCA LTV depends heavily on renewal economics: a merchant funded once produces commission on initial deal only; a merchant funded 3-4 times across 18 months produces 3-4x the LTV at marginal incremental CAC. Renewal-program quality is often the biggest driver of LTV:CAC variation across MCA shops.
Frequently Asked Questions
Frequently Asked Questions
How should I calculate MCA LTV?
Sum of expected commissions across initial deal and probable renewals, discounted to present value if calculating long-horizon. Include weighted average renewal probability and typical renewal commission. Many shops use simplified 1.5–2.5x initial commission as LTV proxy.
What drives MCA LTV most?
Renewal rate is the dominant driver — moving from 30% to 60% renewal rate roughly doubles LTV. Other drivers: average deal size growth, customer-success investment reducing churn, and effective renewal-stage targeting via portfolio data mining.