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CMA Final · Entrepreneurship and Startup · Scalability, Scaling up and Stabilisation of Sustainable Business

A SaaS startup in Bengaluru spends ₹6,000 to acquire each customer, earns ₹2,000 contribution per year per customer, and customers stay on average 4 years. What is the LTV to CAC ratio, and how should it be read?

Lifetime value is ₹2,000 x 4 = ₹8,000, so LTV to CAC is 8,000/6,000 = 1.33. This is well below the commonly used benchmark of about 3, so unit economics are weak and aggressive scaling should be paused until improved.

  1. A1.33; the startup should pause scaling because it is below 3Correct
  2. B0.75; acquisition cost exceeds lifetime value
  3. C3.00; acceptable
  4. D1.33; it is fine because the payback is within one year

Explanation

LTV = 2,000 x 4 = ₹8,000. LTV/CAC = 8,000 / 6,000 = 1.33. A common benchmark is about 3 or higher, so 1.33 shows thin unit economics and scaling acquisition would be premature. The 0.75 option inverts the ratio, and payback here is 3 years, not under one year.

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