What is the LTV:CAC ratio?

The LTV:CAC ratio compares customer lifetime value (LTV) to customer acquisition cost (CAC). It measures how much value a customer generates relative to what it costs to acquire them. A ratio of 3:1 means a customer is worth three times what it cost to acquire them.

What is a good LTV:CAC ratio?

A LTV:CAC ratio of 3:1 is generally considered healthy for SaaS. Below 1:1 means you are losing money on every customer. Between 1:1 and 3:1 suggests you are under-investing in growth. Above 5:1 can indicate you are under-spending on sales and marketing and leaving growth on the table.

What is CAC payback period?

CAC payback period is the number of months it takes for a customer's gross profit to recover the cost of acquiring them. It is calculated as CAC divided by gross margin per customer per month. A payback period under 12 months is healthy for most SaaS businesses; under 6 months is excellent.

How is customer lifetime value (LTV) calculated?

LTV is calculated as ARPU multiplied by gross margin, divided by the monthly churn rate. This gives the total gross profit a customer generates before they churn. For example, $99 ARPU, 80% gross margin, and 3% monthly churn gives an LTV of $2,640.

Free LTV:CAC Calculator

Calculate your customer Lifetime Value (LTV), Customer Acquisition Cost (CAC), the LTV:CAC ratio, and CAC payback period in seconds. Enter your numbers below — results update instantly and all calculations run in your browser.

Lifetime Value Inputs

ARPU ($/month)

Gross Margin (%)

Monthly Churn Rate (%)

Acquisition Cost Inputs

Total S&M Spend ($)

New Customers Acquired

Customer LTV

CAC

LTV:CAC Ratio

0:1

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CAC Payback Period

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The Formulas

LTV measures the total gross profit a customer generates before churning. CAC measures how much it costs to acquire one customer. The ratio tells you whether your acquisition spend is sustainable.

Lifetime Value

LTV = (ARPU × Gross Margin %) ÷ Monthly Churn Rate

Customer Acquisition Cost

CAC = Total S&M Spend ÷ New Customers Acquired

CAC Payback Period

Payback = CAC ÷ (ARPU × Gross Margin %)

What a Good Result Looks Like

A LTV:CAC ratio of 3:1 is the widely cited benchmark for healthy SaaS unit economics. CAC payback should ideally be under 12 months. Here's how this calculator grades your numbers:

Healthy (green): LTV:CAC ≥ 3:1 and payback ≤ 12 months. Your acquisition spend is efficient and recovers quickly.
Caution (amber): LTV:CAC between 1:1 and 3:1, or payback 12–18 months. You may be under-investing in growth or paying too much to acquire.
At risk (red): LTV:CAC below 1:1, or payback over 18 months. You risk losing money on every customer acquired.

Note: a ratio above 5:1 isn't always better — it can mean you're under-spending on sales and marketing and leaving growth on the table. The sweet spot is usually 3:1 to 5:1.

Common Mistakes

Common Mistake

Forgetting to apply gross margin when calculating LTV. LTV should reflect gross profit, not revenue — using ARPU directly without the margin inflates LTV and makes the ratio look healthier than it is. Another common error is counting only ad spend as CAC while excluding sales salaries and headcount, which understates CAC. Finally, using revenue churn instead of customer churn for the LTV denominator understates lifetime when you have expansion revenue; for LTV use customer (logo) churn, and pair it with the gross margin × ARPU figure that reflects blended revenue per customer.

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Free LTV:CAC Calculator

The Formulas

What a Good Result Looks Like

Common Mistakes

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