LTV to CAC Ratio Calculator
Estimate simplified gross profit lifetime value, customer acquisition cost, their ratio, and payback in months from recurring customer and acquisition inputs.
How the LTV to CAC model works
Enter monthly average revenue per customer, gross margin, and monthly customer churn. The model estimates gross profit lifetime value using constant monthly churn, then compares it with customer acquisition cost from sales and marketing spend divided by new customers acquired during the same period.
CAC spend and new customers must refer to the same acquisition period. That period does not have to be a month. The resulting CAC is a cost per customer. Payback is shown in months by dividing CAC by monthly gross profit per customer.
The ratio is available only when both LTV and positive CAC can be calculated. Zero churn leaves the simplified LTV undefined. Zero new customers leaves CAC undefined. Zero CAC makes the ratio undefined rather than infinite. These cases can leave other results available.
The four ratio bands are fixed numeric descriptions: below 1, 1 to below 3, 3 to below 5, and 5 or more. They are illustrative ranges, not ratings, benchmarks for every company, or a recommendation to change spending.
Step by step
- Enter monthly ARPU, gross margin percentage, and monthly customer churn percentage.
- Enter sales and marketing spend and the number of new customers from the same acquisition period.
- Review the available gross profit LTV, CAC, ratio range, and simple payback in months.
Worked example
Assume monthly average revenue per customer of 100 USD, gross margin of 80%, and monthly customer churn of 2%. Monthly gross profit is 80 USD; the simplified LTV is 80 / 0.02 = 4,000 USD.
For the same acquisition period, 10,000 USD of sales and marketing spend for 50 new customers gives CAC of 200 USD. LTV divided by CAC is 20 to 1, and simple gross profit payback is 200 / 80 = 2.5 months. The ratio range is a numeric illustration, not a business grade.
When to use this calculator
Use the calculator to inspect how monthly gross margin and customer churn relate to acquisition cost under a simplified steady assumption. It can also show how a selected acquisition period affects CAC per new customer.
Compare clearly defined scenarios while keeping currencies and periods consistent. The calculator does not decide whether an acquisition plan, price, or spending level is suitable for a business.
Common input mistakes
Do not divide monthly spending by customers acquired over a different period. That mixes the CAC numerator and denominator. CAC can use a quarterly or other period if both entries cover that same span.
Do not enter revenue churn where customer churn is requested, or treat gross profit LTV as revenue or net profit. The model has no discount rate, expansion revenue, or customer cohort schedule.
Formulas and assumptions
Monthly gross profit per customer = monthly ARPU × gross margin percent / 100
Simplified gross profit LTV = monthly gross profit / (monthly customer churn percent / 100)
CAC = sales and marketing spend for an acquisition period / new customers in the same period
LTV to CAC ratio = LTV / CAC, when CAC is positive
Simple payback in months = CAC / monthly gross profit, when monthly gross profit is positive
Illustrative ranges: below 1, 1 to below 3, 3 to below 5, and 5 or more
Churn is the monthly fraction of customers lost. The simplified lifetime is 1 / churn, with the first month of gross profit included. The method assumes constant customer churn and gross margin, with no discounting, expansion, or cohort variation. The ratio bands are descriptive ranges and are not recommendations.
Scope and limitations
This simplified model assumes constant monthly ARPU, gross margin, and customer churn. LTV is undiscounted gross profit based on inverse monthly churn, not revenue LTV, realized lifetime profit, or a cohort forecast. It excludes expansion, contraction, acquisition timing within the period, retention variation, overhead, and the time value of money. CAC uses sales and marketing spend and new customers from one matching acquisition period. The ratio bands are descriptive numeric ranges only. All cash amounts must use the same displayed currency; no conversion occurs.
Key terms
- Gross profit lifetime value
- Simplified gross profit LTV uses monthly ARPU times gross margin divided by monthly customer churn, assuming a constant churn rate.
- Customer acquisition cost
- CAC is sales and marketing spend divided by new customers acquired during the same period.
- Customer churn
- Monthly customer churn is the share of customers lost during a month. It is not the same as revenue churn.
Related analysis
SaaS Churn Damage models a separate revenue churn scenario, while MRR Runrate compares recurring revenue paths. Their definitions and timing differ from this customer based LTV and acquisition cost calculation.
CAC Audit can break acquisition spending into channels. Compare its period and customer count with the blended inputs here before interpreting a combined result.
FAQ
What do LTV and CAC measure here?
LTV is modeled gross profit over an assumed customer lifetime before acquisition cost. CAC is the matching acquisition period sales and marketing spend divided by new customers. Neither figure is a complete measure of realized customer profit.
How is customer lifetime value estimated?
It uses monthly ARPU multiplied by gross margin and divided by monthly customer churn. This inverse churn method assumes constant churn and includes the first month of gross profit. It does not discount future cash flows or model expansion, contraction, or cohort differences.
Must CAC spending be monthly?
The number of new customers and the sales and marketing spend must cover the same acquisition period. That period can be a month, quarter, or another span. CAC is cost per new customer; payback is then expressed in months using monthly gross profit.
How are payback months calculated?
Simple payback divides CAC by monthly gross profit per customer, calculated from monthly ARPU and gross margin. It assumes that gross profit is steady. It does not model collection delays, retention by cohort, or cash flow timing within a month.
Can I use revenue churn instead of customer churn?
Customer churn measures lost customers. Revenue churn measures lost recurring revenue and is a different input. This model requires customer churn, not revenue churn.
Related tools
Use CAC Audit to inspect acquisition spending by channel. SaaS Churn Damage and MRR Runrate model other recurring revenue questions with different definitions and timing.