Free tool
LTV to CAC calculator
The short answer
Lifetime value is monthly revenue per customer times gross margin, divided by monthly churn. Divide it by what it costs to win a customer to get the LTV to CAC ratio; a common benchmark is 3 to 1 or better, with acquisition cost paid back within 12 months.
On this page 5 sections
LTV to CAC
Revenue minus the cost of serving the customer
Customers lost in a month / customers at the start
Sales and marketing spend / new customers
Low churn on a short history overstates lifetime
Lifetime value
$5,333
LTV : CAC
3.6 : 1
CAC payback
9.4 mo
Lifetime used
33.3 mo
Inside the common benchmarks: LTV at least 3 times CAC and payback within 12 months.
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The formulas
- Gross profit per month = average monthly revenue per customer x gross margin.
- Lifetime (months) = 1 / monthly churn, capped if you choose.
- LTV = gross profit per month x lifetime.
- LTV : CAC = LTV / customer acquisition cost.
- CAC payback (months) = CAC / gross profit per month.
Why the cap matters
At 1% monthly churn the formula assumes customers stay 100 months, more than eight years. Young businesses rarely have the history to support that, and the further out the profit, the less it is worth today. Capping lifetime at three to five years keeps the number honest. Set the cap to 0 to see the uncapped figure.
Getting the inputs right
- Use gross margin, not revenue: subtract hosting, support, payment fees and anything else it costs to serve a customer.
- Measure churn over at least six months, and by cohort if you can.
- Calculate CAC per channel as well as blended. Blended CAC includes word-of-mouth customers that cost nothing and flatters paid channels.
- For non-subscription businesses, replace monthly churn with the share of customers who do not buy again within a year, and work in years.
The full explanation, with a worked example: SaaS metrics: LTV, CAC, payback and churn. For the first-order view of ad spend, use the break-even ROAS calculator.
Questions
- What is a good LTV to CAC ratio?
- A common benchmark is 3 to 1: lifetime gross profit at least three times the cost to acquire the customer. Far above 5 can mean you could grow faster by spending more on acquisition.
- Should LTV use revenue or gross profit?
- Gross profit. Revenue-based LTV overstates what a customer is worth by the cost of serving them, which makes acquisition look cheaper than it is.
Related guides
SaaS metrics: LTV, CAC, payback and churn explained
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