LTV CAC Calculator: Ratio, LTV & CAC Payback

The two numbers that decide if growth makes money

Customer lifetime value (LTV) is the gross profit you expect from a customer before they leave. Customer acquisition cost (CAC) is what you spend to win one. Divide the first by the second and you know whether every new customer makes you richer or poorer. It is the first slide a SaaS investor looks for, and the fastest sanity check a founder can run before raising the ad budget.

Revenue growth can hide a broken model for a long time. If LTV is below CAC, each customer you add digs the hole deeper, and scaling just makes you lose money faster.

The formulas

LTV = average revenue per customer per month × gross margin ÷ monthly churn rate. Dividing by churn gives the expected lifetime: at 3 percent monthly churn, the average customer stays 1 ÷ 0.03 = 33.3 months.

CAC = total sales and marketing spend in a period ÷ new customers won in that period. Fully loaded CAC includes salaries, commissions, agency fees, and tools, not just ad spend. Ad-only CAC is flattering and misleading.

LTV:CAC ratio = LTV ÷ CAC. CAC payback period = CAC ÷ (monthly revenue per customer × gross margin), which is the number of months of gross profit it takes to earn back what you spent to acquire the customer.

Worked example

A B2B SaaS charges an average of $100 a month with a 75 percent gross margin, so each customer produces $75 of gross profit a month. Monthly churn is 3 percent. LTV = $75 ÷ 0.03 = $2,500.

Last quarter the company spent $50,000 on sales and marketing and signed 100 customers. CAC = $50,000 ÷ 100 = $500. LTV:CAC = $2,500 ÷ $500 = 5.0 to 1. Payback = $500 ÷ $75 = 6.7 months.

Now watch what churn does. Double it to 6 percent and LTV halves to $1,250, the ratio falls to 2.5, and the business goes from 'scale it' to 'fix retention first', without a single change to pricing or marketing. Churn is usually the lever with the biggest payoff, which is why the churn rate calculator sits next to this one.

What good looks like

The widely used rule of thumb is 3:1. Below 1:1 you lose money on every customer. Between 1:1 and 3:1 you make money per customer, but not enough to cover overhead, R&D, and G&A comfortably. At 3:1 to 5:1 the unit economics support aggressive growth. Above 5:1 sounds great but often means you are under-investing in acquisition and leaving market share to competitors.

Payback matters as much as the ratio, because it drives cash. A 5:1 ratio with a 30-month payback can still bankrupt a fast-growing startup that has to fund two and a half years of acquisition upfront. SMB-focused SaaS usually targets 12 months or less; enterprise deals with annual prepayment can tolerate 18 to 24 months.

Mistakes that inflate LTV

Using revenue instead of gross profit. A $100 subscription with $40 of hosting and support costs is worth $60 a month, not $100. Leaving margin out overstates LTV by 1.7x in that case.

Using a churn rate from your best cohort. Early customers who found you organically often churn less than customers bought with paid ads. Calculate churn for the same channel and period you use for CAC.

Ignoring very low churn. At 0.5 percent monthly churn, the formula implies a 200-month (16.7-year) lifetime. Few companies can bank on that. Many analysts cap lifetime at 3 to 5 years, or discount future profit, to keep LTV honest.

Blending channels. A 4:1 blended ratio can hide paid search at 1.5:1 and referrals at 12:1. Run the calculator per channel before moving budget.

Improving the ratio

Raise ARPA with annual plans, usage-based upsells, or a price increase for new customers. Lift gross margin by trimming infrastructure costs or moving support to self-serve. Cut churn with better onboarding in the first 30 days, where most cancellations start. Lower CAC by investing in channels that compound, such as SEO, referrals, and integrations, rather than ones that stop the moment you stop paying. If you are evaluating a one-off investment rather than a recurring customer, the payback period calculator and ROI calculator are the better fit.