What is a key use of CAC and LTV metrics in budgeting?

• A. To ensure profitability by comparing LTV to CAC.
• B. To set salaries for the marketing team.
• C. To determine quarterly cash flow.
• D. To price the product.

Answer: (A)

The fundamental idea is using how much you spend to acquire customers against how much revenue those customers generate over their lifetime to judge profitability when budgeting. CAC tells you the upfront investment to win a customer, while LTV estimates the total value that customer will bring over their relationship with you, after considering margins. By comparing LTV to CAC, you can see whether growth spending will pay off in the long run and how quickly you should expect to recoup your investments. This ratio guides how much you can sustainably spend on marketing, where to allocate budget across campaigns, and whether pricing, retention, or product improvements are needed to improve profitability. The other options don’t capture this core budgeting purpose: salaries are set separately, quarterly cash flow hinges on timing of receipts and payments, and pricing is a distinct lever—though it can influence LTV, it isn’t the primary budgeting use of CAC and LTV.