Free tool · Money & pricing
LTV & CAC calculator
Customer lifetime value (LTV) is the gross profit you expect from a customer before they leave. Compare it with what you spend to win each customer (CAC): a ratio around 3:1 or better usually means acquisition is paying off.
LTV : CAC ratio
8.2 : 1
Strong — you can probably spend more on growth.
- Customer lifetime value (LTV)
- $980
- Customer acquisition cost (CAC)
- $120
- Average customer lifetime
- 25 months
- CAC payback period
- 3.1 months
Formulas
- Average lifetime (months) = 1 ÷ monthly churn rate
- LTV = Monthly revenue per customer × Gross margin × Lifetime
- CAC = Sales & marketing spend ÷ New customers
- Payback (months) = CAC ÷ (Monthly revenue × Gross margin)
Why use gross margin, not revenue
A customer paying $100 a month for a product that costs you $60 to deliver is only worth $40 a month to you. Calculating LTV on revenue makes acquisition look far cheaper than it is — the most common mistake in early SaaS and subscription box models.
Worked example: a small SaaS
Customers pay $49 a month, gross margin is 80% and 4% cancel each month, so the average customer stays 25 months. LTV = $49 × 0.8 × 25 = $980.
The founder spends $3,000 a month on ads and content and gets 25 new customers, so CAC is $120. LTV:CAC is about 8:1 and CAC is paid back in about three months — a sign there is room to spend more on growth.
Improving the ratio
- Reduce churn — onboarding, annual plans and a cancel flow that offers a pause often move LTV more than any price change.
- Raise average revenue through tiers, add-ons and price increases for new customers.
- Lower CAC with referrals, SEO and partnerships, which compound over time instead of resetting every month like paid ads.
Frequently asked questions
How do you calculate customer lifetime value?
Multiply average monthly revenue per customer by gross margin, then by the average number of months a customer stays (1 ÷ monthly churn). For one-off purchases, use average order value × gross margin × purchases per customer.
What is a good LTV to CAC ratio?
Around 3:1 is a widely used benchmark. Below 1:1 you lose money on every customer; well above 5:1 can mean you are under-investing in growth.
What is CAC payback period?
The number of months of gross profit it takes to earn back the cost of acquiring a customer. Shorter payback means less cash tied up in growth.
What counts in customer acquisition cost?
All sales and marketing spend in a period — ads, tools, content, sales salaries and commissions — divided by the new customers won in that same period.