LTV:CAC Ratio Calculator
Enter your ARPA, gross margin, churn and customer acquisition cost. Instantly see your customer lifetime value, LTV:CAC ratio and a plain-English verdict on your unit economics.
What LTV and CAC each measure
LTV (lifetime value) is the total gross profit a customer generates over their whole relationship with you: monthly revenue, adjusted for margin, multiplied by how long they stay. CAC (customer acquisition cost) is the fully-loaded cost of winning one customer — ad spend plus sales salaries, commissions, tools and overhead, divided by new customers acquired in the same period.
Why the ratio is the core SaaS check
Every subscription business runs on one question: do customers pay back what they cost to acquire, with enough left over to fund everything else? The LTV:CAC ratio answers it in a single number. At 3:1 or above, unit economics are healthy and the business can scale spending. Between 1:1 and 3:1, the model works but the buffer is thin — fix pricing, margin, churn or acquisition efficiency before scaling. Below 1:1, each new customer destroys value, and growing faster just loses money faster.
Example. ARPA of $500, 80% gross margin, 5% monthly churn and $2,000 CAC: LTV = $500 × 0.80 ÷ 0.05 = $8,000; ratio = $8,000 ÷ $2,000 = 4.0 : 1 — comfortably healthy.
Common mistakes
- Mixing logo churn with revenue churn. LTV is about dollars, so use revenue churn — and make sure the churn period matches the ARPA period (monthly with monthly, annual with annual).
- Ignoring gross margin. Revenue-based LTV flatters the number; subtracting cost of goods sold (hosting, support, onboarding) is what makes the ratio honest.
- Measuring CAC over a different window than churn. CAC should cover the same customer cohort and timeframe as the lifetime you're estimating — sales cycles and seasonal spend distort both sides if the windows don't line up.
- Treating 3:1 as a universal law. Capital-intensive or long-payback businesses may target higher; land-and-expand products may tolerate lower early on if expansion revenue is proven. It's a benchmark, not physics.
Frequently asked questions
Why is 3:1 the LTV:CAC benchmark?
A 3:1 ratio leaves enough gross profit to cover sales and marketing overhead, R&D, general admin and a return for investors — costs that sit outside CAC. Below 3:1 the business can still grow, but margins for error get thin; below 1:1 you literally spend more to acquire a customer than they ever pay you.
My LTV:CAC ratio is 2 — should I panic?
Not necessarily. A ratio between 1 and 3 usually means your acquisition works but isn't efficient yet: raise ARPA (upsells, price increases), improve gross margin, reduce churn, or cut CAC (cheaper channels, better conversion). Just don't scale spend aggressively until the ratio improves — growth multiplies whatever inefficiency you have.
Should I use gross margin or contribution margin for LTV?
Gross margin is the standard: revenue minus cost of goods sold (hosting, support, onboarding for SaaS). Contribution margin goes further and subtracts variable sales costs too — it's more conservative. Pick one and use it consistently over time, since the benchmark bands assume gross margin. This calculator uses gross margin.
Logo churn or revenue churn for LTV?
Use revenue churn, not logo churn, because LTV is about dollars, not headcount. Losing 10% of customers who pay 1% of revenue barely moves LTV; losing 1% of customers who pay 20% of revenue moves it a lot. Just make sure the churn period matches the ARPA period — both monthly or both annual.
Does the LTV:CAC ratio work for non-SaaS businesses?
Yes, whenever you can estimate repeat revenue per customer. For ecommerce, replace ARPA and churn with average order value, purchase frequency and customer lifespan (e.g. LTV = average order value × orders per year × average years as a customer × gross margin). The math changes but the question stays the same: do customers pay back their acquisition cost with room to spare?