LTV:CAC Ratio Calculator

Calculate the ratio of customer lifetime value to acquisition cost — the core efficiency test of a subscription business model.

📊 SaaS Metrics📐 LTV:CAC = (ARPA × gross margin / churn rate) / CAC💼 Business
Monthly ARPA (average revenue per account)
Gross margin (%)
Monthly churn rate (%)
Customer acquisition cost (CAC)
Please enter valid values.

Formula & Reference

VariableSymbolFormulaUnits
LTV:CAC Ratio Calculator—LTV:CAC = (ARPA × gross margin / churn rate) / CACratio

Step-by-Step Examples

Example 1
Healthy Ratio

ARPA 120/month, 80% gross margin, 3% monthly churn, CAC 900.

  • Lifetime = 1 / 0.03 = 33.3 months
  • LTV = 120 × 0.80 × 33.3 = 3,200
  • LTV:CAC = 3,200 / 900 = 3.56:1
  • Payback = 900 / (120 × 0.80) = 9.4 months
✓ 3.56:1 — healthy range
Example 2
High Churn Problem

ARPA 50/month, 75% gross margin, 8% monthly churn, CAC 600.

  • Lifetime = 1 / 0.08 = 12.5 months
  • LTV = 50 × 0.75 × 12.5 = 469
  • LTV:CAC = 469 / 600 = 0.78:1
  • Each customer returns less than they cost to acquire
✓ 0.78:1 — unsustainable
Example 3
Possibly Underinvesting

ARPA 400/month, 85% gross margin, 1.5% monthly churn, CAC 2,500.

  • Lifetime = 66.7 months
  • LTV = 400 × 0.85 × 66.7 = 22,667
  • LTV:CAC = 9.07:1
  • A ratio this high often means more could profitably be spent on acquisition
✓ 9.07:1 — room to invest more

Real-World Applications

💰
Unit Economics Test
LTV:CAC is the single clearest test of whether a subscription business model works at the unit level.
📈
Investor Benchmark
The 3:1 benchmark is widely used by investors as a threshold for a fundable subscription business.
🎯
Channel Comparison
Calculating the ratio per acquisition channel reveals which channels are actually profitable rather than just high volume.
⚠️
Growth Discipline
A ratio below 1:1 means growth actively destroys value — scaling makes the problem larger, not smaller.

Common Mistakes to Avoid

⚠️
Using revenue LTV instead of gross profit LTV

LTV should be calculated on gross profit, not revenue. Ignoring cost of service inflates LTV by whatever your gross margin excludes.

⚠️
Applying a single blended CAC

Blended CAC hides that some channels may be deeply unprofitable while others subsidise them. Channel-level analysis is where the decisions are.

⚠️
Assuming churn stays constant

The simple LTV formula assumes a constant churn rate forever. Real churn usually declines with tenure, so this understates LTV for cohorts that survive early months.

Frequently Asked Questions

What is a good LTV:CAC ratio? ▾
3:1 is the commonly cited benchmark. Below that suggests acquisition is too expensive; well above it may indicate underinvestment in growth.
How is LTV calculated? ▾
Most simply as ARPA multiplied by gross margin, divided by the churn rate. More sophisticated models use cohort retention curves rather than a single churn figure.
Should LTV use revenue or gross profit? ▾
Gross profit. Revenue LTV ignores the cost of serving the customer and systematically overstates the value of each account.
Why can a very high ratio be a problem? ▾
It often signals underinvestment in sales and marketing. If each customer returns nine times their acquisition cost, spending more to acquire faster is usually worthwhile.
How does CAC payback relate to this ratio? ▾
Payback measures how quickly the acquisition cost is recovered, while LTV:CAC measures total return. Both matter — a good ratio with a very long payback still strains cash.

Related Business Calculators

💎 Customer Lifetime Value🎯 CAC Calculator📅 CAC Payback Period📉 Churn Rate📊 SaaS Metrics