Five inputs give you CAC, LTV, the LTV:CAC ratio and your payback period — with a straight answer on whether your unit economics actually work.
Acquisition
All of it — ad spend, salaries, tools, commissions, events.
Value
$
%
Revenue minus hosting, support and delivery costs. 70–85% is typical for SaaS.
%
Share of customers who leave each month. 3% monthly is roughly 31% a year.
LTV : CAC ratio
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CAC—
LTV (gross profit)—
CAC payback—
Average lifetime—
Lifetime revenue—
Annual churn—
Gross profit per month—
Profit per customer—
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The four numbers that matter
CAC — customer acquisition cost. All sales and marketing spend in a period divided by the customers it won. Include salaries and commissions, not just ad spend; excluding them is the usual way CAC ends up flattering.
Average lifetime — 1 ÷ monthly churn rate. At 3% monthly churn the average customer stays 33 months. This assumes churn stays flat, which overstates lifetime for most businesses, since early churn is almost always higher than late churn.
LTV — lifetime value. Monthly revenue × gross margin × lifetime. The margin step matters: a customer paying 120 a month at 80% margin contributes 96 of gross profit, and using the revenue figure instead inflates LTV by 25%.
CAC payback — CAC ÷ monthly gross profit. How many months of a customer's contribution it takes to earn back what you paid to win them. This is the number that governs how fast you burn cash while growing.
Benchmarks
LTV : CAC
What it means
Under 1:1
Losing money on every customer
1–3:1
Marginal — acquisition costs too much or churn is too high
3–5:1
Healthy. The standard target
Over 5:1
Strong, but often a sign of underinvesting in growth
An LTV:CAC above 5 usually means you are leaving growth on the table — you could spend more to acquire customers and still make money on each one. Investors read a ratio that high as timidity as often as efficiency. The generally accepted sweet spot is around 3:1, with CAC payback inside 12 months for a business selling to other businesses, and inside 6 months for self-serve products where cash is tighter.
Where these numbers go wrong
Flat churn assumptions are the biggest distortion — real cohorts churn heavily in months one to three and then stabilise, so a single blended rate understates the value of customers who survive that window. Blended CAC is the second: mixing organic signups in with paid acquisition hides what paid channels really cost, so calculate paid CAC separately when you are deciding where to spend. And expansion revenue is ignored here entirely, so if your accounts grow over time your true LTV is higher than this figure.
Around 3:1 is the widely used target. Below 1:1 you lose money on every customer. Between 1:1 and 3:1 the model is marginal. Above 5:1 the unit economics are strong but you are probably underspending on growth.
How do I calculate CAC?
Divide total sales and marketing spend for a period by the number of new customers acquired in that period. Include salaries, commissions, tooling and agency fees — not just the media budget, which is where most understated CAC figures come from.
Should LTV use revenue or gross profit?
Gross profit. Using revenue ignores the cost of actually serving the customer and overstates lifetime value by whatever your cost of goods is. This calculator applies your gross margin, which is the standard method.
What is CAC payback period and why does it matter?
It is CAC divided by monthly gross profit per customer — how long until a customer has repaid what you spent to win them. It drives cash burn: a 24-month payback means funding two years of costs upfront for every customer, however good the eventual LTV looks.
How do I convert monthly churn to annual churn?
Annual churn is 1 − (1 − monthly churn)¹². At 3% monthly that is about 30.6% a year, not 36% — compounding works on the shrinking base, so simply multiplying by twelve overstates it.