LTV:CAC Ratio Calculator
Enter your average revenue, margin, churn, and acquisition cost to see customer lifetime value, LTV:CAC ratio, and how many months it takes to pay back your acquisition cost.
Inputs
Rule of thumb: a healthy SaaS business targets LTV:CAC of 3:1 or higher, with CAC payback under ~12 months. Below 3:1 usually means you're spending too much to acquire customers relative to what they're worth; well above 5:1 can mean you're under-investing in growth.
What LTV:CAC and payback period tell you
Lifetime value (LTV) estimates the total gross profit a customer generates before they churn, using average lifespan (1 ÷ monthly churn rate) as a proxy for how long they'll stick around. CAC payback period answers a more urgent question than the ratio does: how many months until you get your acquisition spend back in gross profit — this is the number that determines how much cash you tie up per new customer, independent of how good the ratio looks on paper.
How to use it
- 3:1 or higher LTV:CAC is the standard rule of thumb for a healthy SaaS business; below 1:1 means you lose money on every customer over their full lifetime.
- Payback under 12 months is generally considered healthy; under 6 months is strong. Longer than that ties up cash you could otherwise spend acquiring the next customer.
- A very high ratio (10:1+) isn't automatically great — it can mean you're being too conservative on growth spend and leaving acquisition opportunities on the table.
Common mistakes
- Computing LTV off revenue instead of gross-margin-adjusted profit — this is the most common way LTV gets overstated.
- Leaving CAC incomplete — fully-loaded CAC should include sales and marketing salaries and tools, not just ad spend.
- Using a blended average churn rate across very different customer segments (e.g. self-serve vs. enterprise), which produces a lifespan estimate that's wrong for both.
- Optimizing for the ratio alone while ignoring payback period — a business can have a great ratio and still run out of cash if payback takes too long relative to how fast it's spending on acquisition.
Frequently asked questions
What's a healthy LTV:CAC ratio?
3:1 or higher is the standard rule of thumb for a healthy SaaS business. Below 1:1 means you lose money on every customer over their full lifetime. A very high ratio (10:1+) isn't automatically great either — it can mean you're under-investing in growth.
What's a good CAC payback period?
Under 12 months is generally considered healthy; under 6 months is strong. Longer than that ties up cash you could otherwise spend acquiring the next customer — payback is often more urgent to watch than the ratio itself.
Why does LTV use gross margin instead of raw revenue?
Computing LTV off revenue instead of gross-margin-adjusted profit is the most common way LTV gets overstated — margin reflects what you actually keep per customer, not just what they pay you.