Every SaaS, subscription, and DTC brand lives or dies by one number: the relationship between what a customer is worth over their lifetime (LTV) and what it costs to win them (CAC). A high LTV and a low CAC mean your business can grow profitably on repeatable spend. A low LTV relative to CAC means every new customer is quietly making you poorer, no matter how impressive the top-line revenue looks. This LTV:CAC ratio calculator turns your ARPU, gross margin, churn, and CAC into a single verdict — plus the CAC payback period and a forward-looking cohort retention curve — so you can see at a glance whether your unit economics are healthy.
Slide the inputs and the ratio updates instantly. The industry benchmark everyone quotes is 3:1: for every dollar spent acquiring a customer, that customer should return three dollars in gross profit over their lifetime. Below 3:1 you are buying growth; above 5:1 you are likely under-investing in acquisition and leaving market share on the table.
How to Use
- Enter your Average Revenue Per User (ARPU) — the average monthly revenue from one active customer. If you run subscriptions, this is your MRR divided by active subscribers. If you sell products, use average order value times monthly purchase frequency.
- Set your Gross Margin as a percentage. Include cost of goods sold, hosting, payment processing, and direct delivery; do not include salaries or sales spend, because those are already in CAC.
- Type your Monthly Churn Rate. This is the share of customers who cancel or stop paying each month. If you only track annual churn, divide by 12 to get a rough monthly figure.
- Enter your Customer Acquisition Cost (CAC) — total sales and marketing spend over a period divided by the number of new customers in that same period. Use a period long enough to smooth out monthly noise (a quarter is typical).
- Optionally adjust the Cohort Horizon to project retention over the number of months you care about (12 is standard for an annual business review).
The result card shows your monthly gross profit per user, average customer lifetime, LTV, the headline LTV:CAC ratio, the CAC payback period in months, and the projected cohort retention at your chosen horizon. A plain-English verdict tells you whether you are in the Excellent (≥5:1), Healthy (3:1–5:1), Sub-optimal (1:1–3:1), or Danger (<1:1) band.
The LTV:CAC Formula
The math behind the calculator is the standard SaaS unit-economics model used by OpenView, Bessemer Venture Partners, and a16z:
LTV = ARPU × Gross Margin ÷ Monthly Churn
LTV : CAC = LTV ÷ CAC
CAC Payback = CAC ÷ (ARPU × Gross Margin)
Where ARPU is monthly revenue per user, gross margin is a fraction (e.g. 70% becomes 0.70), and churn is the monthly cancellation rate as a fraction. Worked example: ARPU of $100, 70% gross margin, 5% monthly churn, and a $300 CAC. Monthly gross profit per user is $70. Average customer lifetime is 1 ÷ 0.05 = 20 months. LTV is $70 ÷ 0.05 = $1,400. The LTV:CAC ratio is $1,400 ÷ $300 = 4.67:1 — comfortably above the 3:1 healthy line. CAC payback is $300 ÷ $70 = 4.29 months, meaning each newly acquired customer stops costing you money in under five months and starts paying back pure profit thereafter.
The cohort retention projection compounds the same churn rate: after 12 months at 5% monthly churn, a cohort retains (1 − 0.05)¹² ≈ 54% of its original members. Lower churn lifts the retention curve steeply — cut monthly churn from 5% to 3% and the 12-month retention jumps from 54% to 69%, almost single-handedly pushing LTV from $1,400 to $2,333.
Why 3:1 Is the Benchmark (and Why It Is Not a Law)
Three-to-one is not a threshold handed down by regulators; it is the point at which the business can comfortably reinvest gross profit into more acquisition while covering operating expenses, R&D, and a margin of safety. Below 3:1, every extra dollar of growth spend consumes cash faster than the newly acquired customers return it, which is why so many venture-backed companies with "growing fast" headlines run out of runway.
But the correct ratio depends on your model. Transactional e-commerce with one-time purchases often runs 1:1–2:1 and is fine because there is no subscription runway to fund. High-velocity, low-ticket consumer apps may happily run 1.5:1. Enterprise B2B software expects 5:1 or higher because deals are lumpy and sales cycles are long, so the company needs a wider cushion. Use 3:1 as a starting diagnosis, then compare yourself against peers in your own category.
Two numbers next to LTV:CAC deserve attention. CAC payback months — how long until a new customer has generated enough gross profit to repay what it cost to win them — should ideally be under 12 months for SaaS and under 6 for consumer subscription. A healthy LTV:CAC can still hide a cash-flow problem if payback stretches beyond a year. Cohort retention — the shape of the retention curve — tells you whether churn is front-loaded (bad: customers leave after trial) or steady (acceptable). The calculator projects the steady-state curve; if your actual cohorts bend downward, the real LTV is lower than the formula predicts.
Examples
Example 1 — A healthy mid-market SaaS. A B2B tool has ARPU of $100/month, 70% gross margin, 5% monthly churn, and a CAC of $300. Monthly gross profit per user is $70, average lifetime is 20 months, LTV is $1,400, LTV:CAC is 4.67:1, and payback is 4.29 months. Verdict: Healthy — close to Excellent. The company can safely increase ad spend because every $300 invested returns $1,400 over the customer's life.
Example 2 — A sub-optimal DTC brand. A subscription box has ARPU of $60, 40% gross margin, 8% monthly churn, and a CAC of $250. Monthly gross profit is $24, average lifetime is 12.5 months, LTV is $300, LTV:CAC is only 1.20:1, and payback is 10.4 months. The ratio is barely above break-even. The fix is usually not to cut ads — it is to lift gross margin (private label) or reduce churn (better onboarding, annual plans), which together can push the ratio past 3:1 without touching acquisition spend.
Example 3 — An enterprise contract at scale. A company lands enterprise customers at ARPU of $10,000/month, 80% gross margin, 2% monthly churn, but pays a $1,000,000 fully-loaded CAC (sales team, travel, pilot costs). Monthly gross profit is $8,000, lifetime is 50 months, LTV is $400,000, and LTV:CAC is 0.40:1 — Danger. Payback alone is 125 months. This is the classic trap: enterprise deals look huge, but the fully-loaded CAC is even huger. The business either needs to raise ARPU, shorten sales cycles, or shrink the sales cost per deal.
FAQ
What is a good LTV:CAC ratio?
The widely cited benchmark is 3:1 — the customer should generate three dollars of gross profit for every dollar spent acquiring them. A ratio above 5:1 is usually considered excellent but can signal you are under-investing in growth. Between 1:1 and 3:1 is sub-optimal; below 1:1 means you are losing money on every customer.
How is LTV calculated from churn?
The standard subscription formula is LTV = ARPU × gross margin ÷ monthly churn. For example, $100 ARPU at 70% margin and 5% monthly churn gives $70 of monthly gross profit divided by 0.05, which equals $1,400 LTV. This assumes churn is roughly steady over the customer's life; if retention improves over time, true LTV is higher.
What is CAC payback and why does it matter?
CAC payback is the number of months it takes a new customer to generate enough gross profit to repay the acquisition cost: payback = CAC ÷ (ARPU × gross margin). Payback under 12 months is comfortable for SaaS; under 6 months is strong. A business can have a healthy LTV:CAC but a 24-month payback, which starves cash flow and forces constant fundraising.
Should I use gross margin or net margin in LTV?
Use gross margin, not net margin. LTV measures the cash a customer directly generates after the cost of delivering your product; sales, marketing, and R&D are operating expenses paid out of the gross profit pool. Mixing net margin into LTV double-counts CAC and breaks the comparison.
How do I calculate CAC if I run both ads and a sales team?
Add up all fully-loaded sales and marketing costs over the period — ad spend, salaries, commissions, tools, agency fees, travel — and divide by the number of new customers acquired in that same period. Do not include expansion revenue from existing customers in the new-customer count; CAC is about winning new logos only.
What is cohort retention and how does it relate to LTV?
Cohort retention tracks what share of a group of customers acquired in the same month is still paying N months later. The calculator projects a steady-state curve: retention at horizon h = (1 − monthly churn)^h. If your real cohorts bend downward (churn accelerates), your true LTV is lower than the steady-state formula suggests, so always sanity-check the projection against actual cohort data.
Can LTV:CAC be too high?
Yes, surprisingly. A ratio above 5:1 often means you are not spending enough on acquisition — competitors are buying up customers you could own, and the market is leaving growth on the table. The right reaction is to gradually increase sales and marketing spend until the ratio settles in the 3:1–5:1 band, rather than to celebrate.
Disclaimer
This LTV:CAC ratio calculator is provided for informational purposes only and does not constitute financial, investment, accounting, or tax advice. Estimates are based on the inputs you enter and the standard subscription unit-economics model; actual LTV, CAC, churn, and payback vary widely by business model, contract structure, geography, and accounting policy. Always validate your unit economics against internal cohort data and consult a qualified finance or accounting professional before making pricing, hiring, or spend decisions.