The LTV/CAC ratio should be at least 3:1
Two numbers decide whether an online store survives: CAC (customer acquisition cost) and LTV (lifetime value). The universal rule: LTV should be worth at least 3 times CAC. Below 3:1, your growth makes you poorer. Above 5:1, you are probably underinvesting in acquisition and leaving market share on the table.
On Senegalese stores measured, median CAC is 4,500 FCFA and median LTV is 16,000 FCFA, a ratio of 3.5:1. That is healthy but fragile: a 20% rise in Meta ad cost is enough to fall below the threshold.
How to calculate CAC
CAC is everything you spend to acquire, divided by the number of new customers.
| Element | Sample month |
|---|---|
| Meta ad budget | 350,000 FCFA |
| Google budget | 120,000 FCFA |
| Influencers | 80,000 FCFA |
| Community manager salary | 150,000 FCFA |
| Total acquisition spend | 700,000 FCFA |
| New customers acquired | 155 |
| CAC | 4,516 FCFA |
Frequent mistake: counting only the ad budget and forgetting salaries and tools. True CAC includes everything used to turn a stranger into a buyer.
How to calculate LTV
LTV is the total gross margin a customer generates over their entire lifetime.
LTV = average basket x gross margin x number of purchases over the lifetime.
| Variable | Value |
|---|---|
| Average basket | 18,000 FCFA |
| Gross margin | 50% |
| Purchases per year | 2.4 |
| Average lifetime | 1.8 years |
| LTV | 38,880 FCFA |
Many calculate an inflated LTV using revenue instead of margin. Correct LTV is always based on gross margin, because that is what the customer truly brings you.
CAC, LTV and ratio benchmarks by category
| Category | Median CAC | Median LTV | LTV/CAC ratio |
|---|---|---|---|
| Fashion | 5,000 FCFA | 21,000 FCFA | 4.2:1 |
| Cosmetics | 4,200 FCFA | 24,000 FCFA | 5.7:1 |
| Jewelry | 6,000 FCFA | 15,000 FCFA | 2.5:1 |
| Electronics | 9,000 FCFA | 14,000 FCFA | 1.6:1 |
| Food | 2,800 FCFA | 33,000 FCFA | 11.8:1 |
| Baby care | 5,500 FCFA | 28,000 FCFA | 5.1:1 |
Food and beauty shine thanks to frequent repurchase. Electronics suffers: one-off purchase, low margin, high CAC. An electronics store only survives if it adds recurring accessories (cases, cables, services).
CAC payback period
As important as the ratio: how long to recover the CAC?
| Scenario | CAC | 1st-order margin | Recovered by? |
|---|---|---|---|
| Healthy | 4,500 FCFA | 6,000 FCFA | 1st order |
| Tight | 5,000 FCFA | 3,000 FCFA | 2nd order |
| Dangerous | 9,000 FCFA | 2,500 FCFA | 4th order |
If you recover your CAC on the first order, you can reinvest fast and grow without cash strain. If recovery takes 4 orders, your growth consumes all your cash.
Full worked example
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A cosmetics store spends 700,000 FCFA/month and acquires 155 customers (CAC 4,516 FCFA). Basket 14,000 FCFA, gross margin 60%, 3 purchases/year, lifetime 2 years.
LTV = 14,000 x 60% x 3 x 2 = 50,400 FCFA.
LTV/CAC ratio = 50,400 / 4,516 = 11.2:1.
This very high ratio signals it should spend more on acquisition: doubling the ad budget would likely push CAC to 6,000 FCFA while keeping an 8:1 ratio, so many more customers for still-excellent profitability.
Levers to improve the ratio
| Lever | Effect | What it acts on |
|---|---|---|
| Loyalty program | +1 to 3 purchases/year | LTV |
| Abandoned cart recovery | -15% CAC | CAC |
| Checkout cross-sell | +15% basket | LTV |
| Refined ad targeting | -20% CAC | CAC |
| Email and WhatsApp marketing | +0.5 purchase/year | LTV |
Acting on LTV is generally more profitable than chasing an ever-lower CAC, because retention costs 5 to 7 times less than acquisition.
FAQ
What LTV/CAC ratio should I target?
At least 3:1. Below that, each acquired customer makes you poorer. Above 5:1, you are probably underinvesting in acquisition and leaving growth on the table.
Should LTV be calculated on revenue or margin?
Always on gross margin. Revenue artificially inflates LTV and distorts every acquisition decision.
What CAC is normal in Senegal?
Median CAC observed is 4,500 FCFA, but it ranges from 2,800 FCFA in food to 9,000 FCFA in electronics. Always compare it to your first-order margin.
How do I lower CAC quickly?
Refine ad targeting, activate abandoned cart recovery and leverage existing customers through referral. These levers cut CAC by 15 to 20% within weeks.
What if my ratio is too high, say 10:1?
Increase your acquisition budget. A very high ratio often means you are not reaching enough customers while each acquisition is highly profitable.
Let's talk about your project. To measure your store's real CAC and LTV and set the right acquisition budget, reach Kolonell on WhatsApp +221 77 596 93 33.
Mohamed Bah
Fondateur, Kolonell
Passionate about digital and entrepreneurship in Africa, Mohamed has been helping Sénégalese businesses with their digital transformation since 2020. Founder of Kolonell, he believes every SME deserves a professional and accessible online présence.
