LTV & CAC Calculator
Use this free customer lifetime value calculator to compute LTV (gross-margin adjusted), customer acquisition cost, your LTV:CAC ratio against the 3:1 benchmark, and CAC payback in months — the unit economics every SaaS founder and investor looks at first.
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How to Use This LTV & CAC Calculator
- Average revenue per customer — your MRR divided by active customers, or the average subscription price.
- Gross margin — revenue minus direct costs of serving customers (hosting, support, payment processing), as a percentage. SaaS is typically 70–85%.
- Monthly churn — the percentage of customers who cancel each month.
- Sales & marketing spend and new customers — total S&M cost and customers acquired over the same period (a quarter works well) to compute CAC.
Customer Lifetime Value Formula
Customer Lifetime (months) = 1 ÷ Monthly Churn RateLTV = ARPU × Gross Margin % × Customer LifetimeEquivalent: LTV = (ARPU × Gross Margin %) ÷ Monthly Churn
This is the gross-margin-adjusted lifetime value formula — the version investors expect. A customer paying $100/month at 80% gross margin with 2% monthly churn stays an average of 50 months and generates $80 of margin each month, so their LTV is $4,000. Using raw revenue instead of margin would show $5,000 and overstate the health of the business by 25%.
Customer Acquisition Cost (CAC) Formula
CAC = Total Sales & Marketing Spend ÷ New Customers AcquiredCAC Payback (months) = CAC ÷ (ARPU × Gross Margin %)
Be honest about what goes into the numerator: ad spend, sales and marketing salaries and commissions, tools, agencies, and content costs. The most common founder mistake is counting only ad spend — which makes CAC look great right up until the fundraise diligence call where it falls apart.
What Is a Good LTV:CAC Ratio?
| Ratio | What it means | What to do |
|---|---|---|
| < 1:1 | You lose money on every customer | Fix churn, pricing, or acquisition channels before scaling anything |
| 1:1 – 3:1 | Fragile unit economics | Improve retention and margin before pouring money into growth |
| ~3:1 | Healthy SaaS benchmark | Scale acquisition with confidence |
| > 5:1 | Very efficient — possibly under-investing | Consider spending more on growth; you may be leaving market share on the table |
Why Unit Economics Decide Whether You Should Scale
Revenue growth means nothing if each customer costs more than they return. LTV:CAC and CAC payback together answer the two questions every founder (and every investor) needs answered: is each customer profitable, and how fast does the cash come back? A company with a 4:1 ratio and 8-month payback can grow largely on its own cash flow. A company with a 2:1 ratio and 20-month payback needs constant outside funding — and churn creeping from 2% to 3% monthly can quietly cut LTV by a third before anyone notices in the P&L.
These numbers also drive valuation. In a fundraise, unit economics are usually the first section of diligence after revenue. Clean cohort data, honest fully-loaded CAC, and margin-adjusted LTV signal a founder who knows their business — which is exactly the financial reporting a fractional CFO builds.
How to Improve Your Ratio
- Reduce churn first. Cutting monthly churn from 3% to 2% raises LTV by 50% — usually the highest-leverage move available.
- Raise prices or expand accounts. ARPU increases flow straight into LTV; most SaaS companies underprice.
- Improve gross margin. Renegotiate hosting, automate support, and cut cost-to-serve.
- Cut CAC on weak channels. Compute CAC per channel — averages hide the channel that is quietly burning money.
- Shorten payback. Annual prepay plans and onboarding fees return the cash faster even when CAC itself is unchanged.
Unit economics decide your valuation.
Our Ex-PwC Chartered Accountants build investor-ready SaaS metrics — cohort LTV, fully-loaded CAC, payback, and the dashboards that make fundraising diligence painless.
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