Business & Work
LTV:CAC Calculator
Work out what a customer is worth over their lifetime, how that compares with what it cost to win them, and how long payback takes.
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Lifetime value (LTV) estimates the gross profit a typical customer brings in before they cancel. Customer acquisition cost (CAC) is what you spend in sales and marketing to win one. Put side by side, they show whether growth pays for itself - and payback months show how long your cash is tied up before it does.
Enter average revenue per account, gross margin, churn and CAC. Churn can be monthly or annual; annual churn is converted to the equivalent monthly rate properly, not simply divided by twelve. Every figure comes with the working, so you can check it against your own model.
How this tool works
Enter ARPA
Average monthly recurring revenue per paying customer.
Enter gross margin
The share of revenue left after hosting, support and other costs of serving customers.
Enter churn
The share of customers lost per month or per year, and say which.
Enter CAC
Sales and marketing spend for a period divided by customers won in it.
Read the results
LTV, the LTV:CAC ratio, payback months and expected customer lifetime - with the formulas filled in.
How it works
Gross profit per customer per month is ARPA × gross margin. The expected customer lifetime is 1 ÷ monthly churn - at 3% churn, an average customer stays about 33 months.
LTV is gross profit per month ÷ monthly churn, which is the same as gross profit per month × expected lifetime. The LTV:CAC ratio divides that by CAC, and CAC payback is CAC ÷ monthly gross profit.
Annual churn is converted with monthly churn = 1 − (1 − annual churn)^(1/12). Dividing by twelve overstates it: 20% a year is about 1.84% a month, not 1.67%, because each month’s churn applies to fewer remaining customers.
At zero churn the formula divides by zero, so LTV has no upper limit. The calculator says so rather than showing an infinite number.
Common use cases
- Checking whether a marketing channel’s acquisition cost is recovered by the customers it brings.
- Setting a maximum CAC target for paid campaigns.
- Seeing how much a churn reduction or a price rise changes lifetime value.
- Preparing unit-economics figures for a board pack or investor update.
About the 3:1 rule of thumb
A ratio of roughly 3:1 or higher, with CAC paid back within about a year, is widely cited as a benchmark for subscription businesses. It was popularised by investor David Skok’s SaaS metrics writing, based on observing established SaaS companies.
Treat it as a heuristic, not a pass mark. It assumes steady churn, no discounting of future profit and no expansion revenue, and it came from mature businesses. Early-stage companies often run below it while they learn, businesses with strong upsell can justify lower upfront ratios, and a very high ratio can mean you are under-investing in growth. Payback matters as much as the ratio when cash is tight.
Common mistakes
- Using revenue instead of gross profit - LTV then overstates what a customer actually contributes.
- Dividing annual churn by 12 instead of converting it.
- Counting only ad spend in CAC and leaving out sales salaries, tools and agency fees.
- Mixing periods or segments - a new channel’s CAC with company-wide churn.
Formula
Gross profit per month
ARPA × gross margin %
Monthly churn from annual
1 − (1 − annual churn)^(1/12)
Customer lifetime (months)
1 ÷ monthly churn
LTV
ARPA × gross margin % ÷ monthly churn
LTV:CAC ratio
LTV ÷ CAC
CAC payback (months)
CAC ÷ (ARPA × gross margin %)
Worked examples
A SaaS plan at $100 a month
At 80% margin, each customer makes $80 gross profit a month. With 3% monthly churn they stay about 33.3 months, so LTV is $80 ÷ 0.03 = $2,666.67. Against a $1,200 CAC the ratio is 2.22 : 1 and payback takes 15 months.
Annual churn of 20%
At $50 ARPA and 70% margin, gross profit is $35 a month. 20% annual churn is 1 − 0.8^(1/12) = 1.84% a month, a lifetime of 54.3 months and an LTV of $1,899.75. With a $500 CAC the ratio is 3.80 : 1 and payback 14.3 months.
Frequently asked questions
What is a good LTV:CAC ratio?
The commonly quoted benchmark is about 3:1, but it is a rule of thumb from mature SaaS companies, not a universal standard. What is sensible depends on your stage, cash position, payback period and how reliable your churn figure is.
Should LTV use revenue or gross profit?
Gross profit is the more conservative and more common choice when comparing with CAC, because CAC is paid from profit, not revenue. Set margin to 100% if you want a revenue-based LTV.
How do I convert annual churn to monthly churn?
Monthly churn = 1 − (1 − annual churn)^(1/12). For 20% annual churn: 1 − 0.8^(1/12) ≈ 1.84% a month. Simply dividing by 12 gives 1.67%, which understates monthly churn.
Why does zero churn give no LTV?
The simple formula divides by churn, so at zero every customer stays forever and value is unbounded. Use your measured churn, or cap the lifetime at a realistic horizon.
Does this account for expansion revenue or discounting?
No. It is the standard steady-state formula. Expansion revenue would raise LTV; discounting future profit, or higher churn among new customers, would lower it.