darikwaCAC & LTV Calculator
Acquisition cost, lifetime value, the ratio between them, and how fast you earn back what you spent. The four numbers every growth decision should run through.
Revenue minus variable cost, as a % of revenue.
% of customers who leave each month.
LTV:CAC ratio (Healthy)
7.00 : 1
3:1 is the rule of thumb for healthy growth.
CAC
£200.00
LTV
£1,400.00
Payback
3.6 mo
Avg lifetime
25.0 mo
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CAC, LTV and why the ratio matters
Customer Acquisition Cost (CAC) is what you spend to win one new customer. Lifetime Value (LTV) is the gross profit that customer generates before they churn. The ratio between them tells you whether your growth engine is profitable.
How to calculate CAC
Take all marketing and sales spend for a period (ads, agencies, salaries of the acquisition team, content production) and divide by the number of new customers acquired in the same period. Be honest about what you include; understating CAC is the most common way founders fool themselves.
How to calculate LTV
LTV = Average monthly contribution x Average lifetime. Contribution is revenue minus variable cost (gross margin %). Average lifetime, in a subscription business, is roughly 1 / monthly churn rate. A 5% monthly churn implies a 20-month average lifetime.
The 3:1 rule
The widely-used benchmark is LTV:CAC of at least 3:1. Below 1:1 you lose money on every customer. Between 1:1 and 3:1 you cover acquisition but not enough to fund the rest of the business. Above 5:1 you are probably under-investing in growth.
Payback period
Payback = CAC / Monthly contribution per customer. It tells you how many months until a new customer pays back what you spent acquiring them. Under 12 months is healthy for most SaaS; under 6 months is excellent. Long payback periods strain cash flow even when the LTV:CAC ratio looks good.
Related tools
Need a hand applying this?
Edward works with UK SMEs on pricing, margins and operations.