Calculate Customer Lifetime Value (LTV), Customer Acquisition Cost (CAC), and the LTV:CAC ratio to assess your business unit economics.
LTV : CAC Calculator
Customer Lifetime Value (LTV)
Customer Acquisition Cost (CAC)
LTV
CAC
LTV:CAC Ratio
CAC Payback
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LTV and CAC: The Unit Economics Every Business Must Know
LTV:CAC ratio is the single most important metric for evaluating whether a business's growth engine is financially healthy. It tells you: for every dollar you spend acquiring a customer, how many dollars do you get back over their lifetime?
LTV Formula
LTV = Average Order Value × Purchase Frequency × Customer Lifespan × Gross Margin
CAC = Total Sales & Marketing Spend / New Customers Acquired
LTV:CAC Benchmarks
<1:1 — Losing money on every customer. Not sustainable.
1:1 – 3:1 — Marginal. Growth will drain cash and require constant fundraising.
3:1 – 5:1 — Healthy. Standard target for VC-backed SaaS growth companies.
>5:1 — Excellent, but potentially under-investing in marketing. Could grow faster.
CAC Payback Period
CAC Payback = CAC / (Monthly Revenue per Customer × Gross Margin). Benchmark: under 12 months for B2C, under 18 months for B2B SaaS. Long payback periods (24+ months) create cash flow risk even with high LTV.
Frequently Asked Questions
The commonly cited healthy benchmark is 3:1 — meaning a customer's lifetime value is at least 3× what it cost to acquire them. Below 3:1 suggests acquisition costs are too high or lifetime value is too low. Above 5:1 sometimes indicates you're underinvesting in growth and leaving market share on the table.
Increase LTV by: (1) reducing churn through better onboarding and customer success, (2) increasing purchase frequency with email sequences, loyalty programs, or subscription models, (3) increasing AOV with bundles, upsells, and cross-sells, (4) expanding into adjacent products (expansion revenue), and (5) improving gross margin through supply chain optimization or automation.
CAC should include ALL sales and marketing costs: ad spend, agency fees, salaries for marketing and sales teams, software subscriptions (CRM, email, analytics), events, referral bonuses, content creation costs, and any discounts or promotions used to drive acquisition. Undercounting CAC by excluding salaries or overhead is a common mistake that makes unit economics look better than they are.
If your LTV is $648 and target LTV:CAC is 3:1, your maximum sustainable CAC is $648/3 = $216. This becomes your target CPA on advertising platforms. If Facebook's CPA is $150, you have margin. If it rises above $216, you're bidding too high and destroying unit economics. LTV-based CPA targets are the professional way to set ROAS/CPA goals on paid channels.