How to use the LTV and CAC calculator
- Enter average monthly revenue per customer. For a retainer business this is the average monthly fee.
- Add your gross margin so lifetime value reflects profit, not just revenue.
- Enter monthly churn, the share of customers who leave each month. 5% churn means an average customer stays 20 months.
- Enter sales and marketing spend and new customers for the same period to get CAC.
The results show both versions of LTV, CAC, your LTV:CAC ratio with a rating, and the payback period.
LTV, CAC and payback formulas
Customer lifetime (months) = 1 ÷ Monthly churn rate
LTV (revenue) = Monthly revenue per customer × Lifetime
LTV (gross profit) = Monthly revenue per customer × Gross margin × Lifetime
CAC = Sales & marketing spend ÷ New customers won
LTV:CAC ratio = LTV (gross profit) ÷ CAC
CAC payback (months) = CAC ÷ (Monthly revenue per customer × Gross margin)
Include everything you spend to win customers in CAC: ad spend, agency and freelancer fees, sales salaries and commission, and sales and marketing software.
What is a good LTV to CAC ratio?
| LTV:CAC | What it means |
|---|---|
| Below 1:1 | You lose money on every customer you win. |
| 1:1 – 3:1 | Profitable but tight. Little room for overheads or growth. |
| 3:1 – 5:1 | Healthy. The common benchmark for sustainable growth. |
| Above 5:1 | Very efficient, but you may be under-investing in growth. |
Pair the ratio with payback. A 3:1 ratio with a 30-month payback can still strain cash flow; many businesses aim to recover CAC within 12 months.
How to improve customer lifetime value
- Reduce churn: clear onboarding, regular reporting and proactive account reviews keep clients longer.
- Raise revenue per customer: upsell related services and review pricing at renewal.
- Improve margin: streamline delivery or outsource fulfillment to lower cost per client.
How to lower customer acquisition cost
- Shift budget to the channels with the lowest cost per customer, not the lowest cost per lead.
- Improve landing page conversion rates and lead follow-up speed.
- Invest in referrals, SEO and content, which get cheaper per customer over time.
- Track leads through to closed revenue so you can see which campaigns actually produce customers.
Frequently asked questions
How do you calculate customer lifetime value?
Multiply average monthly revenue per customer by gross margin and by the average customer lifetime in months. Customer lifetime is 1 divided by monthly churn.
How do you calculate CAC?
Divide total sales and marketing spend for a period by the number of new customers won in that period.
What is a good LTV:CAC ratio?
A ratio of about 3:1 is the common benchmark for healthy growth. Below 1:1 you lose money on each customer; well above 5:1 you may be able to grow faster by spending more.
Should LTV use revenue or profit?
Use gross profit when comparing LTV with CAC. Revenue-based LTV overstates what a customer is worth because it ignores the cost of serving them.
What is CAC payback period?
The number of months it takes for gross profit from a customer to repay what you spent to acquire them. Shorter is better for cash flow.
How do I calculate churn rate?
Divide the number of customers lost during a month by the number of customers you had at the start of that month.