Transparent method
The formula
Worked example
Example inputs
How to interpret the result
The LTV-to-CAC ratio is genuinely sensitive to its underlying churn and margin assumptions, so a small, seemingly reasonable change to either input can shift the ratio from looking like a healthy, sustainable growth engine to looking like a business that's actually losing money on every new customer acquired.
Before you rely on it
What to check
Stress-test the ratio against a somewhat higher churn assumption and a somewhat lower margin assumption before trusting a single base-case number.
The common error
Where people go wrong with LTV:CAC calculator
Trusting a single LTV-to-CAC calculation built on optimistic churn and margin assumptions without stress-testing either one. A modest, more conservative adjustment to either input can move the ratio from healthy-looking to concerning.
Sensitivity evidence
How monthly ARPU changes the estimated customer LTV
| Monthly ARPU | Estimated customer LTV | LTV to CAC |
|---|---|---|
| $160 | $5,120 | 4.27× |
| $180 | $5,760 | 4.80× |
| $200worked example | $6,400 | 5.33× |
| $220 | $7,040 | 5.87× |
| $240 | $7,680 | 6.40× |
Every input, tested
Which input moves the estimated customer LTV most
| Input | Tested from | To | Estimated customer LTV at each end | Swing |
|---|---|---|---|---|
| Monthly customer churn | 1.5% | 3.5% | $10,667 to $4,571 | $6,095 (95%) |
| Monthly ARPU | $180 | $220 | $5,760 to $7,040 | $1,280 (20%) |
| Gross margin | 78.0% | 82.0% | $6,240 to $6,560 | $320 (5.0%) |
| Customer acquisition cost | $1,080 | $1,320 | $6,400 to $6,400 | none |
Two variables at once
Estimated customer LTV by monthly ARPU and gross margin
| Monthly ARPU \ Gross margin | 76.0% | 80.0% | 84.0% |
|---|---|---|---|
| $160 | $4,864 | $5,120 | $5,376 |
| $180 | $5,472 | $5,760 | $6,048 |
| $200 | $6,080 | $6,400 | $6,720 |
| $220 | $6,688 | $7,040 | $7,392 |
| $240 | $7,296 | $7,680 | $8,064 |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Monthly ARPU | $200 |
| Gross margin | 80.0% |
| Monthly customer churn | 2.5% |
| Customer acquisition cost | $1,200 |
| Estimated customer LTV | $6,400 |
| LTV to CAC | 5.33× |
Where the inputs come from
Monthly ARPU is average revenue per customer per month, gross margin is the share of revenue left after the direct cost of serving the customer, monthly customer churn is the share of customers who cancel each month, and customer acquisition cost is the total sales and marketing spend divided by the customers it won. Use a fully loaded CAC that includes salaries and tools, not just ad spend. Use churn measured over recent cohorts.
Using the estimated customer LTV in a real decision
Look at payback time as well as the ratio.
When the result stops applying
LTV depends on churn, which is noisy for young companies, and the simple formula assumes constant churn and no expansion. Long lifetimes derived from tiny churn figures are unreliable. Averages hide differences between segments and channels. CAC varies by channel and rises as you scale.
What to compare it with
See how fast acquisition spend returns on the CAC payback calculator, and churn on the SaaS churn page. The MRR, retention and Rule of 40 calculators cover growth and health. The marketing metrics calculator shows the earlier funnel costs.
People also ask
Frequently asked questions
What is a good LTV to CAC ratio?
Around 3 to 1 or higher is a common benchmark. Much lower means acquisition is too costly, and much higher may mean room to invest more in growth.
How do I compute CAC?
Divide total sales and marketing spend in a period by the number of new customers won in that period, including salaries and tools.
Why use gross margin in LTV?
Because a customer's value is the profit after serving them, not the revenue, and low-margin revenue is worth less.