LTV:CAC Ratio Calculator
The LTV:CAC ratio is the clearest test of whether growth is profitable. Enter lifetime value and acquisition cost to see the ratio, the payback period and what it means.
Inputs
Result
2.18×
LTV to CAC ratio
An LTV of $1,307 against a CAC of $600 is a ratio of 2.18×, thin — each customer repays acquisition but leaves little margin. Acquisition cost is repaid in about 15.3 months.
- LTV (gross profit)
- $1,307
- CAC
- $600
- LTV:CAC ratio
- 2.18×
- CAC payback
- 15.3 months
- Gross profit per customer per month
- $39.20
- Profit after CAC
- $707
Formula
- LTV = (ARPU × gross margin) ÷ monthly churn rate
- LTV:CAC ratio = LTV ÷ CAC
- CAC payback (months) = CAC ÷ (ARPU × gross margin)
- profit per customer = LTV − CAC
Methodology
3:1 is the benchmark the industry settled on: it leaves enough gross profit after acquisition to fund product, support and overhead. Below 3 the business needs either cheaper acquisition or better retention, and rarely fixes itself with volume.
A ratio above 5 is not automatically good news. It usually means demand exists that you are not buying — raising spend until the ratio settles nearer 3 often produces far more absolute profit.
Read the ratio alongside payback. A 4× ratio with a 30-month payback still starves a company of cash, because the return arrives long after the money went out.
These are modelling estimates based on standard SaaS metric definitions. Real results depend on your billing data, contract terms and accounting treatment, so reconcile against your finance system before reporting numbers externally.
Example calculation
- $49 ARPU at 80% margin gives $39.20 of monthly gross profit; at 3% churn LTV is $1,307.
- With a CAC of $600, the ratio is $1,307 ÷ $600 = 2.18×.
- Payback: $600 ÷ $39.20 = 15.3 months.
- Cutting churn to 2% raises LTV to $1,960 and the ratio to 3.27× without spending anything extra.
Frequently asked questions
What is a good LTV:CAC ratio?
3:1 is the widely used target. 1:1 means you break even and fund nothing else; 5:1 or higher usually signals that you could grow faster by spending more.
Why is my ratio so sensitive to churn?
LTV divides by churn, so halving churn doubles LTV and doubles the ratio. Retention is almost always the cheapest lever available for improving unit economics.
Should the ratio use gross profit or revenue?
Gross profit. A revenue-based LTV inflates the ratio by your cost of goods sold and will not survive investor scrutiny.
How does payback period fit in?
The ratio measures eventual return; payback measures how quickly cash comes back. Both need to be acceptable — a good ratio with a very long payback still requires heavy funding.
How often should I recalculate this?
Quarterly at minimum, and by segment. Blended numbers hide the common situation where one channel or customer size is profitable and another quietly is not.
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