LTV:CAC Ratio & Unit Economics Calculator
LTV:CAC compares the gross profit a customer generates over their lifetime with what you paid to acquire them. Enter ARPU, gross margin, churn, marketing spend, and new customers to see your ratio.
LTV:CAC Ratio
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How the LTV:CAC Ratio Works
Customer lifetime value (LTV) is average revenue per user multiplied by gross margin, divided by monthly churn. Customer acquisition cost (CAC) is total marketing and sales spend divided by new customers won in the same period. The ratio tells you whether growth funds itself. A 3:1 LTV:CAC is the common healthy benchmark; below 1:1 you lose money on every customer, and above 5:1 you may be underinvesting in growth. Use gross margin rather than raw revenue, because only margin pays for acquisition. Keep churn monthly and the spend window aligned with the customers counted, or the ratio swings wildly. For a payback view, divide CAC by monthly gross profit per customer; under 12 months is efficient. This calculator returns LTV, CAC, and the ratio so you can see which lever to pull. Improving retention often lifts the ratio faster and cheaper than cutting marketing spend. Watch the trend quarter over quarter, since a slipping ratio usually shows up as rising acquisition costs before it appears in the profit and loss statement.
Formula Used
LTV = (ARPU x Gross Margin) / Monthly Churn; CAC = Marketing Spend / New Customers; Ratio = LTV / CAC
ARPU $100, gross margin 80%, monthly churn 5%, marketing spend $5,000, 50 new customers. LTV = (100 x 0.8) / 0.05 = $1,600; CAC = $5,000 / 50 = $100; ratio = 16x.
When to Use This Calculator
- Checking whether paid acquisition is sustainable.
- Setting a marketing budget that pays back within a year.
- Deciding whether to invest more in retention or acquisition.
Common Mistakes
- Using revenue instead of gross margin: LTV must be built on margin, since delivery costs cannot pay back acquisition.
- Mixing monthly and annual churn: Use monthly churn with monthly ARPU, or annualize both, or the ratio becomes meaningless.
- Counting the wrong customers: Match acquisition spend to the same cohort of new customers for an honest ratio.
Frequently Asked Questions
What is a good LTV:CAC ratio for a healthy SaaS business?
Three to one is the standard healthy target. Below 1:1 means you lose money on each new customer, 1–3 is marginal, and above 5 may mean you are leaving growth on the table. The right target also depends on your payback speed and cash position.
How do you calculate customer lifetime value including churn?
Multiply average revenue per user by gross margin, then divide by monthly churn. The result is the margin-adjusted value of an average customer. Higher retention or higher margin both raise LTV, which is why retention is usually the cheaper lever.
What costs should be included in customer acquisition cost?
Include all marketing and sales spend used to win new customers: ads, content, tools, salaries, and agency fees. Divide by new customers in the same period. Exclude costs that also serve existing customers, or CAC understates.
What is a good LTV CAC ratio for SaaS?
Three to one is the widely used healthy target. Below 1:1 you lose money on every customer, 1 to 3 is marginal, and above 5 may mean you are underinvesting in growth. The right target also depends on payback speed and cash position.
How do you calculate average customer lifespan in LTV?
Average lifespan in months is 1 divided by monthly churn. At 5% monthly churn, the average customer stays about 20 months. Multiply that by monthly gross profit per customer to get lifetime value, which is why retention lifts LTV so strongly.
How This Page Is Reviewed
Written by the Recapflow Editorial Team and last reviewed . Every formula and worked example is cross-checked against the live calculator engine and a hand-worked example. This page is educational and does not replace professional financial, tax, or legal advice.