Customer LTV and CAC Calculator
Customer LTV and CAC Calculator
What a customer is worth over their lifetime, what it costs to win one, the ratio between the two and how many months of margin it takes to earn the acquisition cost back.
LTV to CAC ratio
ARPA $2,000 a month, 75% gross margin, 3% monthly churn, $15,00,000 of sales and marketing for 100 new customers
LTV, CAC and payback
- ARPA
- average revenue per customer a month
- churn
- the share of customers lost each month; 1 ÷ churn is the average lifetime in months
- LTV
- lifetime gross margin per customer, undiscounted: a rupee in year three counts the same as one today
Worked example
ARPA $2,000 a month, 75% gross margin, 3% monthly churn, $15,00,000 of sales and marketing for 100 new customers
Margin per customer = 2,000 × 75% = $1,500 a month
Lifetime = 1 ÷ 0.03 = 33.3 months; LTV = 1,500 ÷ 0.03 = $50,000
CAC = 15,00,000 ÷ 100 = $15,000
LTV:CAC = 50,000 ÷ 15,000 = 3.33; payback = 15,000 ÷ 1,500 = 10 months
How churn changes the example
| Monthly churn | Lifetime | LTV | LTV:CAC |
|---|---|---|---|
| 2% | 50.0 months | $75,000 | 5.00 |
| 3% | 33.3 months | $50,000 | 3.33 |
| 5% | 20.0 months | $30,000 | 2.00 |
| 8% | 12.5 months | $18,750 | 1.25 |
The 3:1 rule of thumb, and what LTV leaves out
Lifetime value asks how much gross margin a customer brings in before they leave. With a steady monthly churn rate, the average customer stays 1 ÷ churn months — 3% a month means about 33 months — so LTV is monthly margin divided by churn: $1,500 ÷ 3% = $50,000. It uses gross margin, not revenue, because the cost of serving the customer is not yours to keep. Customer acquisition cost is all sales and marketing spend divided by the customers it won, here $15,000.
The ratio of the two is widely quoted against a 3:1 benchmark. It comes from investor David Skok’s guide to SaaS metrics, which gives “higher than 3” as a guideline for a successful subscription business, alongside recovering CAC within 12 months — a payback guideline he says many enterprise companies now exceed. Treat both as heuristics, not standards. A ratio far above 3 can mean the business is spending too little on growth; a ratio below 1 means each new customer loses money.
The formula has limits worth knowing. LTV here is undiscounted, so margin in year three counts the same as margin today; with high churn that matters little, with low churn it overstates the value. A discount rate is out of scope on this page. Churn is rarely steady: new customers often leave faster than old ones, and a young business may not have enough history to measure it. Revenue per customer can grow through upgrades, which this formula ignores. And CAC depends on which costs you count and which period you choose; blended CAC, which includes customers who arrived on their own, flatters paid channels.
Use it to compare channels or track a trend rather than as a single verdict. For the cash side, the burn rate and runway calculator shows how long the money lasts while acquisition pays back. This is arithmetic on the figures you enter, not financial advice.
Frequently asked questions
How do you calculate customer lifetime value?
Monthly revenue per customer × gross margin ÷ monthly churn. 2,000 × 75% ÷ 3% = $50,000.
What is a good LTV to CAC ratio?
3:1 is the widely quoted rule of thumb, from David Skok’s SaaS metrics guide. It is a heuristic: read it with payback time and churn.
How do you calculate CAC payback?
CAC ÷ monthly gross margin per customer: 15,000 ÷ 1,500 = 10 months in the example.
Is this LTV discounted?
No. It adds up future margin without discounting it, so for long-lived customers it overstates today’s value.
Related calculators
References
- Skok D. SaaS Metrics 2.0 — A Guide to Measuring and Improving What Matters. forEntrepreneurs.com, first published 4 July 2014, last modified 21 December 2020. LTV = ARPA × gross margin ÷ monthly churn; “Our guideline for a successful SaaS business is that [LTV ÷ CAC] should be higher than 3”; “Months to Recover CAC should be less than 12 months”, with longer paybacks now common in enterprise SaaS.