LTV:CAC Ratio Calculator
The LTV:CAC ratio compares customer lifetime value to acquisition cost, showing the return on your customer acquisition investment. This ratio is one of the most important metrics for SaaS investors and operators, indicating whether your business model is fundamentally sustainable.
How to Calculate
``
LTV:CAC Ratio = Customer Lifetime Value / Customer Acquisition Cost
Example:
LTV = $3,000, CAC = $1,000
LTV:CAC = 3:1 (healthy)
``
Industry Benchmarks
| LTV:CAC Ratio | Health | Action |
|---|---|---|
| <1:1 | Critical | Losing money per customer |
| 1:1 - 2:1 | Unhealthy | Improve retention or reduce CAC |
| 3:1 | Healthy | Sustainable unit economics |
| 4:1 - 5:1 | Strong | Room for growth investment |
| >5:1 | Very Strong | May be underinvesting |
Interpreting Your Results
A 3:1 ratio means you earn $3 for every $1 spent on acquisition. Ratios above 5:1 might indicate underinvestment in growth. Track this ratio by customer segment and acquisition channel.
Why This Metric Matters
Understanding LTV:CAC Ratio helps you:
- Make data-driven business decisions with confidence
- Benchmark against industry standards and competitors
- Identify areas for improvement in your business model
- Communicate performance clearly to stakeholders and investors
- Set realistic goals and track progress over time
Best Practices for Accurate Measurement
1. Use consistent time periods: Compare month-over-month or quarter-over-quarter consistently 2. Include all relevant data: Ensure you capture all revenue sources and costs 3. Track cohorts separately: Analyze metrics by customer segment and acquisition date 4. Monitor trends: Single snapshots are less valuable than trends over time 5. Automate tracking: Use analytics tools to ensure consistent, accurate measurement
Every Metric From These Inputs
100 customers at $49 with 3% monthly churn and $200 CAC:
| Metric | Value | Formula |
|---|---|---|
| MRR | $4,900 | customers × ARPU |
| ARR | $58,800 | MRR × 12 |
| Annual churn | 30.6% | 1 − (1 − monthly)¹² |
| Average lifetime | 33.3 months | 1 ÷ monthly churn |
| LTV | $1,633 | ARPU ÷ monthly churn |
| LTV : CAC | 8.2:1 | LTV ÷ CAC |
| CAC payback | 4.1 months | CAC ÷ ARPU |
What Good Looks Like
| Metric | Healthy | Concerning |
|---|---|---|
| Monthly churn (SMB) | Under 3% | Above 5% |
| Monthly churn (enterprise) | Under 1% | Above 2% |
| LTV : CAC | 3:1 or better | Below 1:1 |
| CAC payback | Under 12 months | Above 18 |
| Net revenue retention | Above 100% | Below 90% |
The Metric This Set Omits
Net revenue retention — expansion revenue minus churn and contraction, from existing customers only. Above 100% means the business grows without acquiring anyone, which is the single strongest signal in SaaS and the one that most affects valuation. It cannot be derived from the inputs above because it needs upgrade and downgrade data.