LTV:CAC Ratio Calculator
Compare what customers are worth with what they cost to win.
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LTV:CAC ratio
Enter values for both sides. CAC must be above 0, and churn above 0 for the LTV formula.
Formula
LTV:CAC = LTV ÷ CAC, with LTV = ARPA × gross margin ÷ monthly churn and CAC = spend ÷ new customers.
Where your ratio sits
Bands follow common rules of thumb, not fixed laws. Read them together with payback and cash.
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The formula
LTV:CAC = customer lifetime value ÷ customer acquisition cost
- LTV = ARPA × gross margin ÷ monthly churn.
- CAC = sales and marketing spend ÷ new customers in the same period.
Use "Calculate both" to work out each side from your inputs, or "I know LTV and CAC" if you already have the two numbers.
Worked example
A customer pays $50 a month, gross margin is 80% and 3% of customers cancel each month. You spent $12,000 on sales and marketing to win 40 new customers.
- LTV: $50 × 80% ÷ 3% = $1,333.
- CAC: $12,000 ÷ 40 = $300.
- LTV:CAC: $1,333 ÷ $300 = 4.4:1.
Each customer is expected to return about 4.4 times what it cost to win them, in gross profit.
How to read it
The bands in the chart follow common rules of thumb rather than fixed laws:
| Ratio | What it usually suggests |
|---|---|
| Below 1:1 | You lose money on every customer you win. |
| 1:1 to 3:1 | Customers pay back, but leave little for the rest of the business. |
| 3:1 to 5:1 | The range most often cited as healthy. |
| Above 5:1 | Acquisition may be underfunded: you could probably grow faster. |
The often-quoted target of 3:1 is a heuristic from venture-backed SaaS, not a rule every business needs to meet. A bootstrapped product with low costs can be healthy below it; a company with long payback can be in trouble above it.
Common mistakes
- Optimistic LTV. LTV depends heavily on churn. A few good months can make churn look low and the ratio look great. Use a churn rate averaged over several months.
- Blended CAC. Mixing free organic customers with paid ones can hide a channel that loses money. Compare the ratio per channel or per customer segment.
- Revenue instead of gross margin. Without the margin the ratio is inflated by the cost of serving customers.
- Very young companies. With little history both LTV and CAC are estimates, so a precise-looking ratio is not precise.
What is a good LTV:CAC ratio?
3:1 is the most common rule of thumb, and 3:1 to 5:1 is usually called healthy. Treat it as a reference point and look at the trend of your own ratio over time.
Can the ratio be too high?
It can be a sign that you are spending too little on growth. If every customer returns six times their cost and you have cash, spending more on acquisition may grow the business faster.
How can I improve LTV:CAC?
Raise LTV by reducing churn, increasing prices or encouraging upgrades, or lower CAC by improving conversion and focusing on channels that bring customers cheaply.
Should LTV be based on revenue or gross margin?
Gross margin. CAC is paid from gross profit, so comparing it with revenue overstates the return.
Why compare it with payback?
The ratio ignores time. Two businesses with the same ratio can have very different cash needs if one recovers CAC in six months and the other in thirty.
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