ROAS, CAC, LTV and MER Explained
Short answer
ROAS is revenue divided by ad spend for a campaign. CAC is total acquisition cost divided by new customers acquired. LTV is the total gross profit a customer generates over their relationship with you. MER is total revenue divided by total marketing spend across all channels. ROAS judges a campaign, CAC and LTV judge the business model, and MER is the only one that cannot be double-counted across platforms.
Published 2026-09-05 · Updated 2026-09-05
ROAS: campaign-level efficiency
ROAS is revenue attributed to a campaign divided by that campaign's spend. Spend ₹1,00,000 and attribute ₹4,00,000 of revenue, and you have a 4X ROAS.
Its weakness is that it says nothing about profit. Revenue is not margin, and platform-attributed revenue is not verified revenue. A 4X ROAS is excellent at 60 percent margin and loss-making at 20 percent.
Break-even ROAS: the number that should set your target
Break-even ROAS is approximately one divided by your contribution margin. Contribution margin means revenue minus cost of goods, payment fees, shipping, packaging and expected returns: everything that varies with the order.
At 25 percent contribution margin, break-even is 4X. At 50 percent, it is 2X. At 70 percent, it is about 1.43X. This single calculation resolves most arguments about whether a campaign is performing, and most brands have never done it.
CAC: what a customer costs
CAC is total acquisition cost divided by new customers acquired in the period. Done properly it includes agency fees, creative production and tooling, not just media. Those are real costs of acquiring the customer.
Blended CAC uses all spend and all new customers, which is the honest figure for the business. Channel-level CAC is useful for allocation but overlaps across platforms, so the channel figures will not sum to the blended one.
LTV: what a customer is worth
LTV should be measured in gross profit, not revenue. A customer who spends ₹10,000 over two years on 30 percent margin products is worth ₹3,000, and that ₹3,000 is what can fund acquisition, overheads and profit.
The ratio that matters is LTV to CAC. Below 1:1 you lose money on every customer. Around 3:1 is generally considered healthy for consumer businesses. Above 5:1 often means you are underinvesting in growth rather than performing brilliantly.
MER: the number that cannot lie
MER is total revenue divided by total marketing spend across every channel. Because it uses actual revenue from your store or accounts rather than platform attribution, it cannot double-count the same purchase.
This matters because Meta and Google will both frequently claim the same order. Summing platform-reported revenue routinely produces a figure larger than the business actually made. MER is the sanity check, and it should be the number reviewed at the top of every reporting conversation.
Payback period: the one that decides cash
How long until a customer's cumulative gross profit repays their acquisition cost. A business can have healthy LTV to CAC and still fail if payback takes eighteen months and there is no capital to bridge it.
For consumer brands, payback inside the first order is safest; within three months is workable. For subscription and B2B, longer payback is normal and acceptable if retention is genuinely proven rather than assumed.
The four metrics at a glance
| Metric | Formula | What it answers | Main weakness |
|---|---|---|---|
| ROAS | Attributed revenue ÷ ad spend | Is this campaign efficient? | Ignores margin; attribution inflated |
| Break-even ROAS | 1 ÷ contribution margin | What ROAS do we need? | Requires accurate margin data |
| CAC | Total acquisition cost ÷ new customers | What does a customer cost? | Often excludes fees and creative |
| LTV | Gross profit per customer over lifetime | What is a customer worth? | Frequently estimated too optimistically |
| MER | Total revenue ÷ total marketing spend | Is marketing working overall? | Too blunt for channel decisions |
Related questions
Is a 3X ROAS good?
Only if your contribution margin is above about 33 percent. At 25 percent margin, 3X loses money. Calculate break-even ROAS from your own margin before judging any campaign against a benchmark.
Should LTV use revenue or profit?
Gross profit. Revenue-based LTV consistently overstates what a customer is worth and leads brands to justify acquisition costs their margins cannot support. It is one of the most common ways an apparently healthy business runs out of cash.
Why do our platform ROAS figures not match actual revenue?
Attribution windows, view-through credit, and overlap between platforms all inflate platform-reported revenue. Two platforms frequently claim the same order. Use MER against actual store revenue as the reference number and treat platform figures as optimisation signals rather than accounting.
What LTV to CAC ratio should we aim for?
Around 3:1 is a common healthy target for consumer businesses. Below 1:1 is unsustainable. Well above 5:1 usually indicates underinvestment in growth rather than exceptional efficiency. You could probably profitably spend more.