Customer Lifetime Value (LTV)
$
%
%/mo
Customer Acquisition Cost (CAC)
$
months
—
LTV : CAC Ratio
Customer LTV
—
lifetime value
CAC
—
to acquire 1 customer
CAC Payback
—
months to recover CAC
Avg. Customer Life
—
months before churn
Industry Benchmarks
< 1:1 Losing money on every customer Critical
1:1 – 3:1 Marginal — needs improvement Below target
3:1 – 5:1 Healthy — SaaS gold standard ✅ Healthy
> 5:1 Excellent — may be under-investing in growth Excellent
💡 Formula: LTV = (ARPU × Gross Margin %) / Monthly Churn Rate · CAC = Monthly S&M Spend / New Customers · Payback = CAC / (ARPU × Gross Margin %)
How to calculate LTV, CAC and the LTV:CAC ratio
LTV (customer lifetime value) is the gross profit a customer generates over their lifetime; CAC (customer acquisition cost) is what you spend to win one customer. The LTV:CAC ratio shows whether growth is profitable; 3:1 is the widely used benchmark.
Formula
LTV = Monthly revenue per customer x Gross margin / Monthly churn rate CAC = Sales and marketing spend / New customers acquired CAC payback (months) = CAC / (Monthly revenue per customer x Gross margin)
Example
$100 per month per customer, 80% gross margin, 4% monthly churn: LTV = $100 x 0.8 / 0.04 = $2,000. $30,000 spend brings 50 customers: CAC = $600. LTV:CAC = 3.3:1, payback 7.5 months.
Frequently asked questions
What is a good LTV to CAC ratio?
About 3:1 is the common benchmark. Below 1:1 you lose money on each customer; far above 5:1 may mean you are under-investing in growth.
What is a good CAC payback period?
For SaaS, under 12 months is healthy and under 6 months is excellent.
Should LTV use revenue or gross margin?
Gross margin. Revenue-based LTV overstates value because it ignores the cost of serving the customer.