Tiered LTV:CAC Targets (3/6/9/12)
When you need this method
You steer toward the much-quoted 3:1 rule and wonder why the math still does not work. The rule comes from a pure self-service model with no humans in the process. As soon as sales or delivery run manually, the model needs buffers for salaries, ramp-up and the inevitable performance spread of new hires.
Approach
- 1Count honestly how many manual roles sit in your value chain: attraction, selling, delivery.
- 2Assign the target: 0 humans 3:1, 1 human 6:1, 2 humans 9:1, 3 humans 12:1.
- 3Calculate LTV as lifetime gross profit, not revenue.
- 4Compare your actual ratio against the tiered target instead of the blanket 3.
- 5Work on the endpoints: take humans out of the loop, raise LTV, or lower CAC via brand and referrals.
Typical application
A typical case: a sales-driven software business with white-glove onboarding considers its ratio of just over 3:1 healthy because "the rule" says so. In reality two manual roles sit in the process: a sales team and a delivery team. By the tiers, 9:1 would be the appropriate target; the business is calculated far too tightly and has no buffer for growth and hiring. The consequence is a mix of price increases, more automated onboarding and a productized entry offer.
Limits and counter-indications
The tiers are a heuristic from the SMB and service world, not an industry-normalized benchmark; in B2B SaaS, reconcile them with the segmented Skok and Bessemer thresholds. The steps are coarse and do not replace a proper fully loaded cost calculation. For hybrid motions (partly self-serve, partly high-touch), calculate per segment.
How to measure impact
LTV:CAC on a lifetime gross profit basis, compared against the target of the applicable tier.
Related methods
Tools for this
Sources
- 1.Marc Nerlove, Kenneth J. Arrow: Optimal Advertising Policy under Dynamic Conditions, Economica 29(114), 1962, S. 129 ff. (opens in a new tab) · 1962 · academic and scholarly literature · supports the underlying mechanismTreats advertising and acquisition spending as investment in a depreciating goodwill stock and shows that the optimal investment intensity is not a universal constant but follows from the stock's decay rate, the discount rate and demand elasticities - it makes no claim about customer lifetime value or company maturity stages.
- 2.Every Unspoken Rule of Business Explained, Alex Hormozi (Langform-Video) (opens in a new tab) · YouTube · n.d. · practitioner source · describes the methodCarries the tiered requirement itself, under which the necessary ratio of customer value to acquisition cost rises with every additional person involved in delivery.
- 3.Robert C. Blattberg, John Deighton: Manage Marketing by the Customer Equity Test, Harvard Business Review 74(4), Juli-August 1996, S. 136-144 (opens in a new tab) · 1996 · academic and scholarly literature · supports the underlying mechanismApplies the investment logic at customer level: how much to spend on acquisition and retention is a marginal decision - invest up to the point where the marginal contribution to customer equity covers the marginal cost. This is the academic counterpart of the claim that a very high LTV:CAC signals underinvestment. No staging by maturity.
- 4.Robert Dorfman, Peter O. Steiner: Optimal Advertising and Optimal Quality, American Economic Review 44, 1954, S. 826 ff. (opens in a new tab) · 1954 · academic and scholarly literature · supports the underlying mechanismStatic predecessor: a firm's optimal marketing spending intensity equals the ratio of advertising to price elasticity of demand - a firm-specific quantity, not an industry-wide number. Older than the primary source, but without time dimension, stock decay or discounting, and therefore further from the method.
Origin: Hormozi · Adapted from: Alex Hormozi ($100M Offers/$100M Leads, YouTube-Langform)