What is the LTV:CAC ratio?

The LTV:CAC ratio divides Customer Lifetime Value (the total revenue a single customer generates over their lifetime) by Customer Acquisition Cost (the total spend required to acquire one customer). A ratio of 3:1 means each customer returns three pounds for every pound spent acquiring them.

What is a good LTV:CAC ratio?

The widely-cited SaaS benchmark is 3:1 as a minimum for a healthy, scalable business. Below 1:1 means you lose money on every customer acquired. Between 1 and 3 the business is marginal. Above 5:1 is strong, and above 10:1 often means you are under-spending on growth relative to the opportunity.

How is LTV calculated from ARPU?

The standard SaaS formula is: LTV = ARPU x (Gross Margin % / 100) / (Monthly Churn Rate % / 100). Gross margin captures the portion of revenue that is actually retained after direct costs, and dividing by monthly churn converts a monthly revenue figure into a lifetime total.

How is CAC calculated?

CAC = Total acquisition spend / New customers acquired in the same period. Total spend should include all costs that contributed to winning those customers: paid advertising, sales team salaries and commissions, events, content production and any tools used purely for acquisition.

What is the CAC payback period?

Payback period = CAC / (ARPU x Gross Margin%). It is the number of months required for a customer to generate enough gross profit to fully recover their acquisition cost. A payback of 12 months or less is generally considered healthy for SaaS; above 24 months is a warning sign.

Does a high LTV:CAC always mean I should spend more on marketing?

Not automatically. A ratio above 5:1 can mean under-investment in growth, but it can also reflect a niche market where CAC cannot be lowered further, or a retention strength you should protect before scaling. Use the ratio alongside absolute CAC, payback period and cohort retention data to make the full decision.

LTV to CAC Ratio Calculator

The LTV:CAC ratio is the single most important unit-economics metric for any subscription or repeat-purchase business. It answers the fundamental question: for every pound you spend acquiring a new customer, how many pounds do you get back over their lifetime? A ratio below 1 means you are paying more to acquire customers than they ever return — a structurally loss-making model. A ratio of 3:1 or above is the widely-cited benchmark for a healthy, investable SaaS business.

How it works

The calculator supports two paths for each input so you can use whatever data you have available.

Lifetime Value (LTV) can be entered directly if your CRM or finance team has already computed it, or it can be derived from three operating metrics using the standard SaaS formula:

LTV = ARPU x Gross Margin% / Monthly Churn%

Where ARPU is average monthly revenue per active customer, gross margin percentage is the share of that revenue remaining after direct costs (hosting, payment processing, support staff directly tied to delivery), and monthly churn rate is the percentage of customers who cancel each month. Because 1 / monthly churn equals average customer lifetime in months, this formula is equivalent to: LTV = (Monthly gross profit per customer) x (Average customer lifetime in months).

Customer Acquisition Cost (CAC) can also be entered directly or computed from a cost breakdown. The breakdown approach adds together ad spend, sales costs (salaries, commissions, tools) and any other acquisition-related cost for a period, then divides by the number of new customers acquired in that same period:

CAC = Total acquisition spend / New customers acquired

The ratio is then simply:

LTV:CAC = LTV / CAC

Worked example

A SaaS product charges £100/month per customer. Gross margin is 70% and monthly churn is 5%.

LTV = £100 x 0.70 / 0.05 = £1,400

In the same quarter the team spent £20,000 on ads, £5,000 on sales salaries and £2,000 on tools, acquiring 90 new customers.

CAC = £27,000 / 90 = £300

LTV:CAC = £1,400 / £300 = 4.67:1 — rated Strong, above the 3:1 benchmark.

Payback period = £300 / (£100 x 0.70) = 4.3 months — well inside 12 months, meaning the business recoups acquisition cost quickly and free cash flow is not squeezed by a long recovery period.

Formula summary

Metric	Formula
LTV (SaaS)	ARPU x Gross Margin% / Monthly Churn%
CAC	Total acquisition spend / New customers acquired
LTV:CAC ratio	LTV / CAC
Payback period (months)	CAC / (ARPU x Gross Margin%)
Average customer lifetime (months)	1 / Monthly Churn%

All calculations run entirely in your browser — no data is sent to any server.