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CAC vs LTV Calculator — The Only Ratio That Matters

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Calculate customer acquisition cost, lifetime value, and the LTV/CAC ratio that determines whether your growth engine is creating or destroying value.

Customer acquisition cost is spend divided by new customers. Lifetime value is monthly revenue times gross margin times lifespan. The ratio should be at least three.

How it works

Customer Acquisition Cost (CAC) is all-in sales and marketing spend divided by new customers acquired in the same period. Include ad spend, sales salaries and commissions, marketing tools, content production, and any agency fees. Exclude product-development spend (that's R&D, not CAC).

Lifetime Value (LTV) is the average gross-margin contribution from a customer across their lifetime. Formula: monthly revenue per customer × gross margin × expected lifespan in months. Lifespan = 1 ÷ monthly churn rate, so 2% monthly churn implies a 50-month lifespan. The gross margin matters because LTV is about contribution to fixed costs and profit, not headline revenue.

The LTV/CAC ratio is the single number that captures whether the acquisition engine creates or destroys value. David Skok's SaaS canonical thresholds: 3× is healthy, 5× is exceptional, below 1× burns cash on every customer. The payback period — months of gross-margin contribution to recover CAC — is the secondary check; under 12 months is conservative-investor-friendly, 12-18 is typical, over 18 is hard to fund.

Common mistakes

  • Using revenue instead of gross margin for LTV — a $100 ARPU customer at 30% gross margin contributes $30 a month, not $100. LTV computed on revenue is inflated 3× in low-margin businesses and produces dangerously optimistic ratios. Always multiply ARPU by gross margin percentage.
  • Forgetting to allocate sales salaries to CAC — most early-stage founders report "CAC = ad spend / new customers" and skip the SDR/AE salaries. The real CAC at most SaaS companies is 60-80% labour, not ad spend. Allocate proportionally; the gap is usually 2-5× the surface number.
  • Treating short-lived customer cohorts as the lifespan— if you've only been operating 18 months, you don't have data on customer lifespan. Use monthly churn rate inversely: 3% monthly churn = 33-month lifespan. Annualised churn rates need careful conversion (10% annual churn ≠ 0.83% monthly).
  • Mixing self-serve and sales-led customer segments — a $20/mo self-serve customer acquired for $50 has wildly different unit economics from a $500/mo enterprise customer acquired for $3,000. Aggregate ratios mask this. Compute CAC/LTV separately per channel and segment.
See the formula
CAC      = Sales & Marketing Spend / New Customers Acquired

LTV      = ARPU × Gross Margin % × Customer Lifespan (months)
         where Lifespan = 1 / monthly churn rate

LTV/CAC  = LTV / CAC

Payback  = CAC / (ARPU × Gross Margin %) months

Health bands (SaaS conventional wisdom):
  ≥ 5×:   Excellent — strong investor profile
  3-5×:   Healthy — sustainable, can scale
  1-3×:   Marginal — covers costs but not overhead
  < 1×:    Burning cash on every customer

Payback target: under 12 months conservative, 12-18 typical, > 18 hard to fund

Worked example

A B2B SaaS startup spent $30,000 on sales and marketing in a quarter and acquired 150 new customers. CAC = $30,000 / 150 = $200. Average monthly revenue per customer is $60. Gross margin is 70% (typical SaaS — hosting, support, payment processing make up the 30% variable cost). Monthly churn is 4%, giving an expected lifespan of 25 months.

LTV = $60 × 70% × 25 = $1,050. LTV/CAC = $1,050 / $200 = 5.25×. Health: excellent. Payback period = $200 / ($60 × 70%) = $200 / $42 = 4.8 months. Conservative-investor green light on both metrics.

Now flex one variable. If monthly churn doubles to 8% (lifespan drops to 12.5 months), LTV collapses to $525 and the ratio falls to 2.6× — barely above the marginal threshold. Churn is the most sensitive lever in this whole calculation; a 1-2 percentage point shift in monthly churn changes LTV by 30-50%. The most valuable retention investment is almost always cheaper than a sales-team push to compensate.

Flex the other direction. If CAC creeps to $400 (say, as the startup outgrows easy organic channels and starts paying for harder ones), LTV/CAC at the original $1,050 LTV drops to 2.6×. Same ratio as the churn scenario above — and just as concerning. The calculator's job is to make this trade-off visible before the board meeting, not at it.

Frequently Asked Questions

What is a good LTV to CAC ratio?
3× minimum, 5× excellent. Below 3× the acquisition engine is technically positive but doesn't cover overhead, R&D, or runway. Below 1× every new customer destroys value. Above 5× usually indicates either under-investment in growth (capacity to acquire more profitably) or genuinely exceptional product-market fit.
How do I calculate CAC?
Total sales and marketing spend in a period divided by net-new customers acquired in the same period. Include ad spend, sales-team salaries and commissions, marketing tools, content production, agency fees. Exclude product/engineering (R&D) and customer-success time spent on existing accounts.
How do I calculate LTV?
ARPU × gross margin % × customer lifespan in months. Lifespan = 1 / monthly churn rate, so 3% monthly churn implies 33-month lifespan. Always use gross margin contribution, not headline revenue — a $100 ARPU customer at 30% margin contributes only $30 per month to fixed costs and profit.
What is a typical SaaS payback period?
Under 12 months is conservative-investor friendly. 12-18 months is typical for mid-stage SaaS. Above 18 months is hard to fund — the cash gap between customer acquisition and recovery starves the business of working capital and forces dilutive fundraising rounds.
Why use gross margin instead of revenue?
Because LTV measures contribution to fixed costs and profit, not top-line. A $100 customer at 30% margin and a $30 customer at 100% margin both contribute the same $30/month. Using revenue for LTV inflates the ratio 3-5× in low-margin businesses and produces optimistic numbers that fall apart at the board meeting.
Should I include sales salaries in CAC?
Yes — for most SaaS businesses, sales labour is 60-80% of true CAC. Founders who only count ad spend chronically understate CAC and overstate ratios. Allocate proportionally: if 70% of the sales team's time goes to net-new acquisition versus expansion, 70% of their fully-loaded cost belongs in CAC.
How do I estimate customer lifespan if I'm young?
Use monthly churn rate inversely: lifespan = 1 / monthly_churn. 2% monthly churn = 50-month lifespan; 5% = 20 months. Annualised churn needs careful conversion: 10% annual ≠ 0.83% monthly (it's actually 0.87% per month for 10% annual compound). Even 18 months of data gives reasonable monthly-churn estimates for fitting the lifespan.
Does LTV/CAC differ by industry?
Yes. SaaS targets 3-5×. Marketplaces and e-commerce often run lower (1.5-3× is normal because LTV is harder to define and CAC is high). Subscription consumer apps (Netflix, Spotify) operate at 4-7× in steady state. B2B enterprise with long sales cycles often start at 2× in year-one cohorts and improve to 5×+ by year-three as upsells and renewals compound.
How can I improve LTV/CAC?
Three levers in order of impact: (1) Reduce churn — 1-2 percentage point monthly improvement can increase LTV 30-50%. Almost always cheaper than acquiring offsetting new customers. (2) Increase ARPU through upsells, premium tiers, or annual prepay discounts. (3) Reduce CAC through organic channels, referrals, or content marketing — but these take time to build.
What is the most common CAC LTV mistake?
Aggregating across channels and segments. A $20 self-serve customer acquired for $50 has 4× LTV/CAC ratios but is a different business from a $500 enterprise customer acquired for $3,000 at 8× ratio. Average them and you get useless 5× — the picture only sharpens when broken out by channel (paid search, content, outbound), customer tier, and acquisition cohort.

Glossary

CAC
Customer acquisition cost — fully-loaded sales and marketing spend divided by new customers acquired in the same period.
LTV
Lifetime value — the gross-margin contribution expected from a customer over the time they stay subscribed.
Payback Period
Months of gross-margin contribution needed to recover acquisition cost. The cash-flow check that sits alongside the LTV/CAC ratio.
ARPU
Average revenue per user, usually quoted monthly. The input that drives both LTV and payback period.

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Methodology & sources

Rates last verified: May 2026

Read the full methodology →

LTV calculated as ARPU × gross margin × lifespan (simple linear model). For high-churn cohorts the more accurate formula is ARPU × gross margin / monthly churn rate — converges to the linear form when churn is low. CAC includes labour allocation in the spend input; cohort-based CAC analysis (separating channels and segments) is recommended for businesses past $1M ARR.

Rates are reviewed annually or when a region changes its headline rate. If you spot one that's out of date, email [email protected].

For information only. This calculator does not constitute financial, accounting, or tax advice. Consult a qualified professional before making business decisions.

Try these scenarios

Pre-filled examples — click any chip to load the inputs and result.

How to calculate CAC and LTV

  1. Enter sales & marketing spendAll-in: ads, sales salaries, tools, content production for the measurement period.
  2. Enter new customers acquiredNet new — exclude expansions or re-activations.
  3. Add average monthly revenue per customer (ARPU)Recurring revenue, not one-off fees.
  4. Set gross margin and customer lifespanLifespan = 1 / monthly churn rate. SaaS averages 24-36 months.
  5. Read the ratio and payback periodAim for LTV/CAC ≥ 3 and payback under 12-18 months.

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Written by

James Blanckenberg

Founder, BusCalcTools

Founder of BusCalcTools and FinnCalc. Builds practical financial calculators for small business owners and freelancers across the US, UK, and South Africa.

Editorial review by: James Blanckenberg, Founder & Editor

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