LTV to CAC Calculator: calculate ltv to cac for your business. Formula, benchmarks, and practical tips included.
The LTV:CAC ratio — Customer Lifetime Value divided by Customer Acquisition Cost — is the single most important metric for assessing the sustainability and capital efficiency of a subscription or SaaS business. LTV measures the total gross profit a business expects to earn from a customer over their entire relationship; CAC measures everything spent to acquire that customer, from marketing spend to sales salaries to onboarding costs. When LTV substantially exceeds CAC, the business is creating value with every customer it adds; when CAC approaches or exceeds LTV, every new customer destroys value. Profit Margin Calculator and Markup Calculator provide the revenue and cost context needed to understand what drives both metrics.
The 3:1 LTV:CAC benchmark — meaning the lifetime value of a customer should be at least three times the cost of acquiring them — was popularised by David Skok of Matrix Partners and has become the de facto standard for SaaS health assessment. Businesses below 1:1 are in existential danger; those between 1:1 and 3:1 are growing but inefficiently; those above 5:1 are generating exceptional returns on customer acquisition investment. The CAC payback period — how many months of gross profit it takes to recover the acquisition cost — is equally important: top-quartile SaaS companies achieve payback in under 12 months; companies with payback over 24 months face significant capital risk during downturns.
Customer LTV = ARPU × Gross Margin % × Customer Lifetime. Where Customer Lifetime = 1 ÷ Monthly Churn Rate. At 2% monthly churn, lifetime = 50 months. At 5% churn, lifetime = 20 months — a 2.5× difference in LTV for the same ARPU and margin.
CAC = (Monthly Sales & Marketing Spend ÷ New Customers per Month) + Onboarding Cost per Customer. Blended CAC includes all sales costs — salaries, commissions, marketing budget, tools, events, and management overhead — divided by the number of new paying customers. Add per-customer onboarding and implementation costs for the true fully-loaded CAC.
Worked example: ARPU £79/mo, gross margin 70%, monthly churn 2%. LTV = £79 × 0.70 × 50 = £2,765. CAC = (£15,000/30) + £200 = £700. LTV:CAC = £2,765 ÷ £700 = 3.95:1 (healthy). CAC payback = £700 ÷ (£79 × 0.70) = 12.6 months.
A ratio above 3:1 indicates a healthy business where customer acquisition is profitable and growth can be funded through revenues or modest external capital. A ratio above 5:1 — top-quartile SaaS performance — indicates the business is underinvesting in growth: it could profitably increase S&M spend to acquire more customers faster, since each customer generates 5× its acquisition cost in lifetime value. A ratio below 3:1 means the business should slow growth spending, focus on reducing churn, and improve monetisation before scaling acquisition.
OpenView Partners' 2023 SaaS Benchmarks report found that the median B2B SaaS gross margin is 73% and average monthly churn is 1.5–2% for established companies. Churn below 1% per month (12% annually) is world-class; above 3% per month (36% annually) is a sign of serious product-market fit issues. The CAC payback period is especially critical during high interest rate environments: capital is expensive, so businesses with 24-month payback periods face much higher capital costs than those recovering CAC in 8–10 months.
LTV:CAC calculations are financial planning metrics for internal use and investor reporting. They are not audited financial statements and should not be presented as such in regulated financial disclosures. When preparing information for FCA-regulated investment rounds, AIM listings, or other regulated capital raises in the UK, ensure all metrics are calculated consistently with applicable accounting standards (IFRS or UK GAAP) and reviewed by a qualified financial adviser. Projections of future LTV are inherently uncertain and subject to changes in churn, pricing, and market conditions.