CAC vs LTV Calculator

Customer Acquisition Cost (CAC) and Customer Lifetime Value (LTV) are the two numbers that define whether your business model works. CAC tells you what it costs to acquire one customer. LTV tells you how much gross profit that customer generates before they leave. If LTV is not significantly larger than CAC, your business is burning cash on every customer you acquire.

CAC is calculated by dividing your total sales and marketing spend by the number of new customers acquired in the same period. Include everything: ad spend, content production, sales team salaries and commissions, marketing tools, agency fees, and event costs. A company spending $150,000 per month on sales and marketing that acquires 100 new customers has a CAC of $1,500.

LTV is calculated as: Average Monthly Revenue per Customer x Gross Margin % x Average Customer Lifespan in Months. If a customer pays $200/month, your gross margin is 75%, and the average customer stays 24 months, LTV = $200 x 0.75 x 24 = $3,600. Note that LTV uses gross margin, not revenue — because the direct costs of serving each customer must be subtracted.

The LTV:CAC ratio is the headline metric. The widely cited benchmark is 3:1 — your LTV should be at least three times your CAC. Below 3:1, customer acquisition is too expensive relative to what customers generate. Above 5:1, you may be underinvesting in growth and leaving market share on the table. The payback period — months to recover CAC from gross margin — is equally important: under 12 months is healthy, under 6 months is excellent.

If your LTV:CAC ratio is below 3:1, diagnose which side is the problem. High CAC usually means inefficient acquisition channels or an expensive sales process. Low LTV usually means high churn, low pricing, or thin margins. Reducing churn by just 1 percentage point per month can increase LTV by 25-40% — often the highest-leverage improvement available.

Segment your LTV:CAC by acquisition channel, customer size, and cohort. You will almost certainly discover that some channels produce customers with 5:1+ ratios while others produce customers below 2:1. Shift budget from low-ratio channels to high-ratio ones. This channel-level analysis frequently unlocks 20-40% improvement in blended CAC without increasing total spend.

Track these metrics monthly and build a dashboard that shows CAC, LTV, LTV:CAC ratio, and payback period by cohort. The most sophisticated growth teams also track "time to value" — how quickly new customers reach their first success moment — because this metric is the single strongest predictor of both retention and expansion revenue, which directly drive LTV.