LTV:CAC Ratio Calculator
Calculate customer lifetime value, acquisition cost, and the LTV:CAC ratio the way an investor will check it: margin-adjusted, horizon-capped, and shown with CAC payback so the ratio cannot flatter you.
How do I calculate the LTV:CAC ratio?
Divide customer lifetime value by fully-loaded customer acquisition cost. Lifetime value is average revenue per customer multiplied by gross margin, divided by the churn rate, and it must be capped at a realistic horizon, because the uncapped formula assumes your current churn rate holds forever and produces enormous numbers at low churn. A ratio of 3:1 or better is the conventional target; below 1:1 you lose money on every customer you acquire.
How to use this tool
- 1
Enter revenue and margin
Average revenue per customer per month and your gross margin percentage: the margin step is what makes the ratio honest.
- 2
Add churn and acquisition cost
Monthly churn rate and fully-loaded sales and marketing spend divided by customers won.
- 3
Read the ratio with its caveats
Get capped and uncapped LTV, the ratio, CAC payback in months, and a read on what the number actually supports.
A 6:1 ratio is usually a warning, not a win
Both sides of this ratio carry definitional choices, so it compounds two sets of assumptions. Five things decide whether your number means anything.
Uncapped LTV assumes forever
The textbook formula divides by churn rate, which implies the customer stays until the rate exhausts them. At 1% monthly churn that is a hundred-month life. Cap the horizon at 36 or 60 months and the ratio becomes something you can plan against.
Revenue LTV overstates by the whole cost base
Lifetime value must be margin-adjusted. You cannot recover acquisition cost out of revenue you never keep, and a revenue-based LTV inflates the ratio by exactly the size of your COGS.
Marketing-only CAC halves the denominator
Fully-loaded CAC includes sales salaries, commissions, tooling, and the share of leadership time spent selling. Marketing-spend-only CAC is often less than half the real figure, and it is the version most often quoted.
A very high ratio means underinvestment
Above roughly 5:1, the usual explanation is not exceptional efficiency but that you are leaving growth on the table. If every customer returns five times what they cost, the question is why you are not acquiring more of them.
Blended ratios hide the weak channel
A healthy blended 3:1 can contain one channel at 6:1 and another at 0.8:1. Calculating by channel and by segment is the only way to find the spend that is actively destroying value.
Numbers to sanity-check against
These are widely repeated industry rules of thumb rather than audited benchmarks, and they vary substantially by segment, contract length, and price point.
The ratio is an output, not a diagnosis
A ratio tells you whether the unit economics work in aggregate. It cannot tell you which channel is dragging, whether the newest cohort is better or worse than last year's, or whether the churn rate you used is even stable. Answering that means cohort analysis joined to acquisition channel, pricing, and onboarding data: a different dataset every time the question is asked, which is why most teams calculate the ratio once a quarter and never decompose it.
See how DataWyse answers thisQuestions finance teams ask about this tool
What is a good LTV:CAC ratio?
Three to one or better is the conventional target for B2B SaaS. Below one to one you lose money on every customer acquired. Above five to one usually indicates underinvestment in growth rather than exceptional performance, if each customer returns five times their cost, the question is why you are not buying more of them.
Should LTV use revenue or gross profit?
Gross profit. You cannot recover acquisition cost from revenue that goes straight back out as cost of delivery. Multiply average revenue per customer by gross margin before dividing by churn, or the ratio overstates by exactly the size of your cost base.
Why is my LTV unrealistically high?
Because the standard formula divides by churn rate and implicitly assumes that rate persists indefinitely. At 1% monthly churn it models a hundred-month customer life. Cap the calculation at 36 or 60 months, which is what this tool does, and the result becomes defensible.
What should be included in CAC?
Everything spent to win a customer: marketing programmes, sales salaries and commissions, sales tooling, and a fair share of leadership time spent selling. Marketing-only CAC is common in the market and frequently under half the fully-loaded figure, which makes the resulting ratio meaningless for planning.
How is LTV:CAC different from CAC payback?
The ratio measures total return per dollar of acquisition spend. Payback measures how quickly you get that dollar back, which is a cash question rather than a profitability one. A business can have a strong ratio and a payback period long enough to run out of money before the return arrives, so both should be read together.
Is this tool really free?
Yes. No signup, no email required, no usage limit. It runs entirely in your browser: nothing you type is uploaded to a server or stored anywhere. We build these because the people who find them useful are the people who eventually need a financial analyst that works the same way.
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