LTV : CAC Calculator
Customer acquisition cost from spend and new customers, lifetime value on gross margin and churn (with expansion and discounting), the LTV:CAC ratio, CAC payback months and what it takes to reach 3:1.
| Customer acquisition cost (CAC) | — |
|---|---|
| Gross margin per customer per month | — |
| Average customer lifetime | — |
| Customer lifetime value (LTV) | — |
| CAC payback period | — |
| Verdict | — |
| To reach 3:1 | — |
In short
CAC = sales and marketing spend ÷ new customers; LTV = monthly gross margin per customer ÷ monthly churn. ARPU 80 at 75% margin and 3% churn gives an LTV of 2,000; with 60,000 spent for 150 customers CAC is 400, so LTV:CAC is 5:1 and payback 6.7 months. The usual benchmark is 3:1 or better with payback under 12 months.
Who this is for: SaaS founders, marketers and investors checking unit economics.
The unit-economics trio
| Metric | Formula | Benchmark |
|---|---|---|
| CAC | Sales + marketing spend ÷ new customers | Falls as channels mature; rises with competition |
| LTV | ARPU × gross margin ÷ monthly churn | — |
| LTV : CAC | LTV ÷ CAC | ≥ 3:1 healthy; > 5:1 under-investing; < 1:1 losing money |
| CAC payback | CAC ÷ monthly gross margin per customer | < 12 months SMB, < 18–24 enterprise |
- Churn is the lever: halving churn doubles LTV. A 3% monthly churn means a 33-month lifetime; 1% means 100 months.
- Use gross margin, not revenue. LTV on revenue flatters the ratio by 20–40%.
- Blended vs paid CAC: organic signups lower the blended figure; investors also want paid CAC (ad spend ÷ paid customers) to judge whether growth spend scales.
- Expansion revenue (upgrades, more seats) can offset churn — net revenue retention above 100% makes the simple formula understate LTV; enter it to see the effect.
Assumptions
- CAC = spend ÷ new customers; LTV = margin per month × Σ (1 − churn)^t (1 + expansion)^t ÷ (1 + monthly discount)^t, closed form while the ratio is below 1.
- Payback = CAC ÷ monthly gross margin per customer.
- Changes needed for 3:1 use the simple margin ÷ churn formula.
Worked example
CAC = 400. Gross margin per customer = 60 a month; lifetime 33.3 months → LTV = 2,000. LTV:CAC = 5.0:1 and payback 6.7 months — strong economics; at this ratio the business could spend more on acquisition. If churn were 6%, LTV would halve to 1,000 and the ratio to 2.5:1.
Frequently asked questions
What is a good LTV to CAC ratio?
3:1 is the widely used benchmark for SaaS; 4–5:1 is excellent; above that, growth is probably being under-funded. Below 1:1 means each customer is acquired at a loss.
What costs go into CAC?
All sales and marketing: ad spend, agency and tool costs, SDR and marketing salaries, commissions, events — divided by the customers those efforts produced.
Should LTV use revenue or gross margin?
Gross margin. Revenue-based LTV is common in marketing decks but overstates the value available to repay CAC.
How do I convert annual churn to monthly?
Monthly ≈ 1 − (1 − annual)^(1/12). For 30% annual churn that is about 2.9% a month; dividing by 12 (2.5%) is close enough for rough work.
How do I calculate customer lifetime value?
Monthly revenue per customer × gross margin ÷ monthly churn; adjust for expansion revenue and a discount rate for a stricter figure.
What is a good CAC payback period?
Under 12 months for SMB SaaS, under 18–24 months for enterprise sales.
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