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LTV : CAC calculator

LTV:CAC compares what a customer is worth over their lifetime against what it costs to acquire them — the single clearest test of whether a subscription business model actually works.

LTV : CAC

$
%
%
$
Customer LTV
$2.7K
LTV:CAC
6.7×
CAC payback
5.0 mo

A healthy SaaS business typically targets LTV:CAC of 3× or more and CAC payback under 12 months. Estimates only.

What is the LTV:CAC ratio?

The LTV:CAC ratio divides customer lifetime value (LTV) — the gross profit a customer generates over their whole relationship with you — by customer acquisition cost (CAC), the cost to win that customer. It tells you, in one number, whether your growth engine creates or destroys value.

How to calculate customer lifetime value

LTV = ARPA × Gross margin × (1 ÷ Monthly churn)

ARPA is average revenue per account per month. Gross margin converts revenue into profit. 1 ÷ monthly churn estimates how many months an average customer stays: 3% monthly churn implies a ~33-month lifetime.

How to calculate CAC and payback

CAC = Total sales & marketing spend ÷ New customers CAC payback = CAC ÷ (ARPA × Gross margin)

Payback is expressed in months — how long until a customer’s gross profit repays what you spent to acquire them.

What’s a healthy benchmark?

LTV:CACWhat it means
Below 1:1Losing money on every customer
1–3:1Works, but often under-monetised or costly to grow
~3:1The classic healthy target
Above 5:1Strong — but may signal under-investment in growth

A worked example

A customer paying $100/month at 80% gross margin with 3% monthly churnhas a lifetime of ~33 months and an LTV of about $2,640. If CAC is $400, the LTV:CAC ratio is ~6.6:1 and CAC payback is ~5 months — a very efficient model.

Common mistakes

  • Using revenue instead of gross profit in LTV — this inflates the ratio.
  • Using blended CAC when most growth is actually paid — this hides the true cost.
  • Ignoring expansion revenue — for products with negative net churn, real LTV is much higher than the simple formula suggests.

Frequently asked questions

What is a good LTV:CAC ratio?

A widely used benchmark for SaaS is 3:1 — every dollar spent acquiring a customer returns about three dollars of lifetime gross profit. Below 1:1 you lose money on every customer. Around 1–3:1 the model works but may be under-monetised or expensive to grow. Much above 5:1 can actually signal under-investment in growth — you may be leaving expansion on the table by not spending more on acquisition.

How do you calculate customer lifetime value (LTV)?

A common formula is LTV = average revenue per account (ARPA) × gross margin × average customer lifetime, where average lifetime in months is 1 ÷ monthly churn rate. So a $100/month customer at 80% gross margin and 3% monthly churn has a lifetime of about 33 months and an LTV of roughly $100 × 0.8 × 33 ≈ $2,640.

What is CAC?

Customer acquisition cost (CAC) is the total sales and marketing spend needed to acquire one new customer over a period — total S&M cost divided by the number of new customers won. A "blended" CAC includes organic customers; a "paid" CAC counts only customers from paid channels and is usually higher.

What is CAC payback period?

CAC payback is how many months of gross profit it takes to recover the cost of acquiring a customer: CAC ÷ (monthly ARPA × gross margin). Most healthy SaaS businesses aim for payback under 12 months; under 6 months is excellent and lets you grow faster with the same cash.

Should I use gross margin in LTV?

Yes. Using revenue alone overstates value because serving customers has a cost. Multiplying by gross margin gives a truer picture of the profit a customer actually generates over their lifetime, which is what you’re comparing against CAC.

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