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LTV : CAC ratio calculator

Builds a proper margin-based lifetime value from your real repeat behaviour, then shows your ratio, your CAC payback period, and the most you can afford to pay for a customer.

Customer value
$
%
Acquisition
$
Goal
LTV : CAC ratio 4.8 : 1
Lifetime value (on margin)$216
Profit per customer$171
CAC payback period5 months
To hit your 3 : 1 target, max CAC $72 You are under target. Room to spend more.
Healthy. Sustainable economics with room to scale.

How the ratio is calculated

The mistake most people make is measuring lifetime value on revenue. A customer who spends 360 dollars is not worth 360 dollars to you, they are worth your margin on it. So this tool works on contribution:

  • Lifetime revenue = order value x purchase frequency per year x lifespan in years.
  • Lifetime value (margin) = lifetime revenue x gross margin.
  • Ratio = margin LTV / CAC. Payback = CAC / the monthly gross margin a customer generates.

The goal field flips the question around: given a target ratio, what is the most you can pay to acquire a customer? That max CAC is your margin LTV divided by the target. If your real CAC is below it, you have room to spend more and buy growth. If it is above, you are overpaying for customers.

What is a good LTV : CAC ratio?

  • Below 1 : 1 means you lose money on every customer. Fix the offer or funnel before spending more.
  • 1 to 3 : 1 is profitable but thin, with little cushion for rising costs.
  • 3 to 5 : 1 is the healthy zone. Sustainable economics with real room to scale.
  • Above 5 : 1 is very efficient, but often a sign you are underspending and leaving volume on the table.

FAQ

Should LTV be based on revenue or margin?
Margin. Lifetime revenue overstates what a customer is really worth because it ignores your cost of delivering the product. This tool multiplies lifetime revenue by your gross margin, so the LTV, the ratio, and the payback period reflect actual contribution, not top-line sales.
How is lifetime value calculated here?
Lifetime revenue is average order value times purchase frequency per year times customer lifespan in years. Multiply that by gross margin to get the margin-based LTV. The LTV to CAC ratio is that margin-based LTV divided by your customer acquisition cost.
What is a good LTV to CAC ratio?
Around 3 to 1 is the classic healthy target. Below 1 to 1 you lose money on every customer. Between 1 and 3 you are profitable but thin. Between 3 and 5 is the healthy zone. Above 5 to 1 is very efficient but often a sign you are underspending on growth and could buy more customers profitably.
What is CAC payback period?
It is how long it takes the margin from a customer to repay what you spent to acquire them. Shorter is better because it frees up cash to reinvest. It is your CAC divided by the gross margin a customer generates per month.

Ratio too thin to scale, or not sure your LTV is real? That is what I dig into.

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