LTV:CAC Ratio Calculator
The LTV:CAC ratio is one of the most important unit economics metrics for subscription and SaaS businesses. It compares the total lifetime value a customer brings to the business against the cost incurred to acquire that customer. A ratio of 3:1 is widely cited as a benchmark for healthy SaaS unit economics, meaning each dollar spent on customer acquisition returns three dollars in lifetime revenue. Values below 1 indicate an unprofitable acquisition model, while values above 5 may signal underinvestment in growth. This calculator lets you enter LTV and CAC directly, or derive LTV from monthly ARPU and churn rate. It also computes the CAC payback period in months, which is critical for managing cash flow in high-growth companies.
LTV:CAC formulas
LTV = ARPU / Monthly Churn Rate
LTV:CAC Ratio = LTV / CAC
CAC Payback (months) = CAC / (ARPU * Gross Margin)
Churn rate is expressed as a decimal (e.g., 2% = 0.02). Gross margin is the percentage of revenue retained after direct costs.
Interpreting your LTV:CAC ratio
- Below 1:1 - losing money on every customer acquired.
- 1:1 to 3:1 - marginal; review pricing, churn, or acquisition efficiency.
- 3:1 - widely cited SaaS benchmark for healthy unit economics.
- Above 5:1 - potentially under-investing in sales and marketing growth.
LTV:CAC: frequently asked questions
What is the LTV:CAC ratio?
The LTV:CAC ratio compares the total revenue a customer generates over their lifetime (LTV) to the cost of acquiring that customer (CAC). A ratio of 3:1 is generally considered healthy for SaaS businesses.
How do I calculate LTV?
LTV = Average Revenue Per User (ARPU) divided by churn rate. For example, if ARPU is $100/month and monthly churn is 2%, LTV = $100 / 0.02 = $5,000.
How do I calculate CAC?
CAC = Total sales and marketing spend divided by the number of new customers acquired in the same period. If you spent $50,000 and acquired 100 customers, CAC = $500.
What is a good LTV:CAC ratio?
A ratio below 1 means you lose money on every customer. A ratio of 1 to 3 is marginal. A ratio of 3 or above is healthy. Above 5 may indicate under-investment in growth.
What is CAC payback period?
CAC payback period is the number of months needed to recover acquisition cost from gross margin. It equals CAC divided by (monthly ARPU multiplied by gross margin percentage).
Sources
- U.S. Small Business Administration: Manage Your Finances.
- U.S. Federal Trade Commission: Business Guidance Resources.
Reviewed by the CalculatorHub team, edited by James Graham, 14 June 2026. See our methodology.