LTV:CAC Ratio Calculator
Judge the health of your unit economics — LTV:CAC ratio and CAC payback period from margin, churn and acquisition cost.
How it works
Lifetime (months) = 100 ÷ monthly churn% · LTV = ARPA × gross margin% × lifetime · Ratio = LTV ÷ CAC · Payback = CAC ÷ (ARPA × gross margin%)
The LTV:CAC ratio compares what a customer is worth over their lifetime to what it cost to win them — the core test of scalable unit economics. Lifetime value uses gross margin, not raw revenue, so it reflects real profit, and average lifetime is the reciprocal of the monthly churn rate. A widely cited benchmark is 3:1: below it, growth is expensive; far above it, you may be under-investing in acquisition.
Worked example
At $100 monthly revenue, an 80% gross margin and 4% monthly churn, the average lifetime is 100 ÷ 4 = 25 months and LTV is 100 × 0.80 × 25 = $2,000. Against a $600 CAC that is a 3.33:1 ratio, and the $80 monthly margin repays the CAC in 7.5 months.
Sources: Customer lifetime value — Wikipedia
Frequently asked questions
Why is 3:1 the benchmark?
A 3:1 ratio generally leaves enough margin after acquisition to cover overhead and fund growth. Around 1:1 you barely recover acquisition cost; well above 3:1 often means you could safely spend more on acquisition to grow faster.
Why use gross margin in LTV?
Revenue overstates a customer’s worth because serving them has a cost. Multiplying by gross margin counts only the profit each customer generates, giving a realistic value to compare against CAC.
Why does churn drive lifetime?
If you lose a steady fraction of customers each month, the average customer stays 1 ÷ churn periods. At 4% monthly churn that is 25 months — so cutting churn is one of the most powerful ways to lift LTV.
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Educational estimate, not financial advice.