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LTV:CAC ratio calculator

How much gross profit a customer relationship produces for every dollar spent acquiring it. The arithmetic is trivial; the judgement is entirely in the lifetime assumption, which is the input people are most willing to invent.

$

Average recurring revenue per account per month.

%

Revenue minus the cost of delivering the service. LTV on revenue rather than gross profit overstates the ratio by the inverse of this number.

%

Monthly revenue lost from existing customers, as a percentage. This is the fragile input: 1% implies an average life of 100 months, which is longer than most companies have existed.

$

Fully loaded sales and marketing cost divided by new customers won in the same period.

LTV:CAC RATIO

4.17:1

3–5:1 — the conventional healthy range

The widely used operating convention, and a reasonable place to be. It is a convention rather than a law: the right ratio depends on your payback period and how much capital you have.

The formula

LTV = (monthly ARPA × gross margin) ÷ monthly churn rate · Ratio = LTV ÷ CAC

Published because a calculator that hides its arithmetic is asking to be trusted rather than checked. Every input above is defined precisely in the note under its field — most disagreements about these numbers turn out to be disagreements about what went into them.

WHERE THIS FAILS

LTV is dominated by the churn assumption. At 1% monthly churn the implied average life is 100 months — longer than most SaaS companies have existed, so the figure is an extrapolation well beyond the observed data.

The simple formula assumes churn is constant over the life of a customer. It usually is not: churn is front-loaded, so this overstates LTV for young cohorts.

It ignores the time value of money. A dollar of gross profit in year eight is not worth a dollar today, and an undiscounted LTV treats them as equal.

The ratio says nothing about cash timing. A healthy LTV:CAC with a 30-month payback can still run a company out of money — read it alongside the payback period.

DEFINITIONS USED HERE

OTHER CALCULATORS

Run the whole audit, not one number

These calculators each answer one question. The courses here build the full picture — inventory, process, measurement — with interactive tools that keep your data and export it as a workbook.

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COMMON QUESTIONS

What is a good LTV:CAC ratio?
3:1 is the widely used operating convention, and it is a convention rather than a finding — it represents a rough balance between growth and efficiency, not a measured optimum. Below 1:1 you lose money on every customer. Above 5:1 is often read as excellent but can indicate underinvestment in acquisition. The more useful question is whether your payback period lets you survive long enough to collect the LTV.
Should LTV use revenue or gross profit?
Gross profit. Lifetime value calculated on revenue ignores what it costs to serve the customer for that lifetime, which overstates the ratio by the inverse of your gross margin — a 75% margin business calculating on revenue reports a ratio about a third too high. If a quoted LTV:CAC does not state a margin assumption, it was almost certainly calculated on revenue.
Why is LTV so sensitive to churn?
Because churn is in the denominator, so LTV scales as 1 divided by it. Halving monthly churn from 2% to 1% doubles LTV. That sensitivity is why the number should be treated as a range rather than a point estimate, and why a small error in measuring churn produces a large error in the ratio.
How does LTV:CAC differ from CAC payback?
They use the same inputs to answer different questions. LTV:CAC asks how much total return the relationship produces per dollar spent acquiring it. CAC payback asks how long until that dollar comes back. The first is a profitability question and the second is a cash question, and a business can pass one while failing the other — which is why they belong on the same page.