How do you calculate the LTV:CAC ratio?

Work out lifetime value from monthly revenue, margin and churn, then divide it by what you spend to win one customer. With an LTV of $20,000 and a CAC of $5,000, the ratio is 4.0:1.

What is a good LTV:CAC ratio?

Many SaaS companies aim for around 3:1. Below 1:1 each customer costs more than it earns, and a ratio far above 5:1 can mean you are spending too little on growth.

How do you calculate CAC payback?

Divide CAC by the monthly gross profit from one customer. With a $5,000 CAC and $500 × 80% = $400 of monthly gross profit, payback is 12.5 months. A shorter payback means cash comes back faster to fund more growth.

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LTV:CAC Ratio and CAC Payback Calculator

LTV = monthly revenue per customer × gross margin ÷ monthly churn. CAC = sales and marketing spend ÷ new customers. LTV:CAC = LTV ÷ CAC, and payback = CAC ÷ monthly gross profit. $500 ARPA, 80% margin and 2% churn give an LTV of $20,000. $200,000 spent to win 40 customers is a $5,000 CAC, so the ratio is 4.0:1 and payback is 12.5 months.

Monthly revenue per customer (ARPA)$Gross margin%Monthly customer churn%Sales and marketing spend in the period$Salaries, ads, tools and agencies for the same period as new customers.New customers won in the period

LTV:CAC ratio

4.0:1

A healthy ratio. Keep an eye on payback, since cash comes back slowly when it runs past 12 to 18 months.

Customer lifetime value

$20,000

Cost to acquire (CAC)

$5,000

CAC payback

12.5 mo

Monthly gross profit per customer

$400

LTV = $500 × 80% ÷ 2% = $20,000
CAC = $200,000 ÷ 40 = $5,000
LTV:CAC = $20,000 ÷ $5,000 = 4.0:1
Payback = $5,000 ÷ $400 = 12.5 mo

Frequently asked questions

How do you calculate the LTV:CAC ratio?: Work out lifetime value from monthly revenue, margin and churn, then divide it by what you spend to win one customer. With an LTV of $20,000 and a CAC of $5,000, the ratio is 4.0:1.
What is a good LTV:CAC ratio?: Many SaaS companies aim for around 3:1. Below 1:1 each customer costs more than it earns, and a ratio far above 5:1 can mean you are spending too little on growth.
How do you calculate CAC payback?: Divide CAC by the monthly gross profit from one customer. With a $5,000 CAC and $500 × 80% = $400 of monthly gross profit, payback is 12.5 months. A shorter payback means cash comes back faster to fund more growth.

About the author

Abdessamad Ghanem

Customer Experience & Customer Success Consultant · Founder of Clarivoxx

Abdessamad Ghanem works across Customer Support, Sales, Customer Success, Account Management and Partner Management. He writes Clarivoxx Insights for B2B SaaS professionals who own retention, adoption and customer outcomes.

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Abdessamad Ghanem