LTV to CAC calculator

What LTV and CAC measure

Customer lifetime value (LTV) is the gross profit you expect from an average customer over the whole time they stay. Customer acquisition cost (CAC) is what you spent to get them. If the first is much larger than the second, each new customer adds to the value of the business; if it is lower, growth makes the business poorer. The ratio and the payback period are the two quickest ways to see which side you are on. They are also among the most abused numbers in business because small changes in the churn input move the answer a lot.

The formulas

Gross profit per month = ARPA × gross margin, where ARPA is the average revenue per account per month. Lifetime in months = 1 ÷ monthly churn, where churn is the share of customers who leave in a month. LTV = ARPA × gross margin ÷ churn. CAC payback in months = CAC ÷ (ARPA × gross margin). LTV : CAC ratio = LTV ÷ CAC.

The lifetime formula comes from the geometric series: with a fixed probability p of leaving each month, the expected number of months a customer pays is 1 ÷ p. Skok's article points to a separate document for the details of the LTV calculation, so the formula on this page is the standard derivation, not a quotation.

Worked example

A subscription costs $50 a month, the gross margin is 75%, 3% of customers leave each month, and winning a customer costs $400. Gross profit is $50 × 75% = $37.50 a month. The lifetime is 1 ÷ 0.03 = 33.3 months, so LTV = $37.50 × 33.3 = $1,250. The ratio is $1,250 ÷ $400 = 3.13, and CAC is repaid after $400 ÷ $37.50 = 10.7 months. These are made-up inputs shown to illustrate the arithmetic, not typical values for any industry.

Common mistakes

Using revenue instead of gross profit inflates LTV by the cost of serving the customer (in the example by 33%). Mixing a yearly churn figure with monthly revenue makes the lifetime absurdly short or long. Averaging across all customers hides that churn is usually highest in the first months, so a blended number can be too hopeful for new cohorts. Using one very low churn month, or a young company's first few months, gives an LTV that rests on a lifetime nobody has observed yet.

Also remember what the model leaves out: discounting of future profit, price increases or expansion revenue, free trials and refunds, and the cost of keeping customers (customer success, support). If the lifetime that comes out is longer than the time you have been in business, treat the LTV as a forecast, not a fact.

What is a good LTV to CAC ratio?

The figure most often quoted is 3 to 1. It traces back to investor blogs rather than to a standard: in his essay SaaS Metrics 2.0, David Skok writes that the best SaaS businesses have an LTV to CAC ratio higher than 3, sometimes as high as 7 or 8, and adds that these are only guidelines with exceptions. Treat 3:1 as a conversation starter. A company that is growing on borrowed money, selling one-year contracts, or expecting churn to fall needs a different bar from one with high churn and little cash.

How is customer lifetime calculated from churn?

If a fixed share of customers leaves every month, the average customer lasts 1 ÷ churn months. At 3% monthly churn that is 33.3 months (2.8 years). This is the mean of a geometric distribution, which is why halving churn doubles the lifetime: at 1.5% the example customer stays 66.7 months and LTV rises from $1,250 to $2,500. It assumes the same churn rate every month, which is rarely true: new customers often leave faster than old ones.

Why does LTV use gross margin and not revenue?

Revenue is not what you keep. The cost of serving the customer (hosting, support, payment fees, materials) comes out of it, and gross margin is the share that is left to pay for acquiring the customer and running the company. With the example numbers, using revenue only (100% margin) would give an LTV of $1,667 instead of $1,250 and a ratio of 4.17 instead of 3.13, a flattering mistake. Use the same cost definitions you use in your accounts.

What is CAC payback?

It is how many months of gross profit from a new customer it takes to repay what you spent to win them: CAC ÷ (ARPA × gross margin). In the example $400 ÷ $37.50 is 10.7 months. In the same essay Skok describes recovering CAC in 5-7 months as a mark of the best SaaS businesses and calls profitability anemic when it takes beyond 12 months; again guidelines. A short payback frees cash to be spent on growth again, which the ratio alone does not show.

What if I only know churn per year?

Pick the yearly option: the calculator converts it to the equivalent monthly rate with 1 − (1 − yearly)^(1/12). A yearly churn of 30% is 2.93% a month, an LTV of $1,280 in the example. Typing 30 into the monthly field by mistake would give a lifetime of 3.3 months and an LTV of $125.

How do I calculate CAC?

Add up what you spent on sales and marketing in a period to win new customers (salaries, commissions, advertising, tools, and the share of overhead you decide to include) and divide by the number of new customers won in the same period. The cost should usually be matched with customers a little later than the spend, because deals take time to close. Choose the definition once and keep it, because the ratio is only meaningful when it is compared with itself over time.

Does this work for businesses that are not SaaS?

The arithmetic is the same for any business where customers pay regularly and leave at a steady rate: gyms, subscription boxes, memberships, retainer clients. It is a poor fit for a shop where the same customer buys at random intervals; there, LTV should be built from the average order, the number of orders per year and the number of years, and the churn field does not apply.

Sources, checked October 28, 2026: David Skok, SaaS Metrics 2.0 – A Guide to Measuring and Improving what Matters (forEntrepreneurs; an investor's blog essay, not a standard: the “higher than 3” ratio and the 5-7 and 12 month CAC payback remarks are his guidelines). The lifetime formula 1 ÷ churn is the mean of a geometric distribution, derived here. Related: break-even calculator, margin calculator, ROI calculator, financial ratios calculator and price increase calculator.

Estimates for planning only — not financial, tax or legal advice. Your own accounts and advisers decide. How we check our calculators.