CAC / LTV Calculator

What it does

LTV/CAC ratio is the single most-watched unit-economics metric for SaaS and subscription businesses. Customer Acquisition Cost (CAC): total sales + marketing spend divided by new customers acquired in the same period. Lifetime Value (LTV): total gross profit a customer generates across their entire relationship — calculated as ARPU (Average Revenue Per User) × Gross Margin × Customer Lifetime (months, typically 1 / monthly churn rate). The ratio LTV/CAC tells you whether you're building a sustainable business: under 1 means you lose money on every customer (existential problem); 1-2 is concerning; 3+ is healthy; 5+ may suggest under- investing in growth (you could spend more on acquisition and still profit). Most successful SaaS companies maintain 3-5x LTV/CAC during growth stage, with the ratio compressing as scale increases.

The calculator takes CAC (blended sales + marketing per customer), monthly ARPU, gross margin %, and either explicit customer lifetime in months OR monthly churn rate (lifetime = 1/churn), then outputs LTV, LTV/CAC ratio, and tier assessment. Example: $500 CAC, $50/mo ARPU, 75% gross margin, 24-month customer lifetime → LTV = $50 × 0.75 × 24 = $900; LTV/CAC = $900 / $500 = 1.8x. Concerning ratio — you're recouping CAC but not building substantial profit per customer. Improving this ratio: lower CAC (better marketing efficiency), raise ARPU (pricing increases, expansion), reduce churn (better retention extending lifetime), or improve margin (cost optimization).

Sophistication beyond the basic ratio: (1) Use ACTUAL gross margin, not GAAP gross margin. Include hosting costs, payment processing fees, customer-success-team costs allocated proportionally, third-party data costs, support costs. Many SaaS calculations use 80% margin assumption when true gross margin is 65-70%. (2) Consider NPV-discounted LTV at scale. A customer contributing $100/month for 5 years isn't worth $6,000 today — discount at your cost of capital (15-20% for early-stage; 8-12% for mature). (3) Cohort-level analysis beats average. Average LTV/CAC of 3x might mask: 5x LTV/CAC for enterprise + 1x for SMB. Decide where to grow based on cohort economics, not blended numbers. (4) Bessemer SaaS benchmarks: top quartile maintains LTV/CAC above 5x; median around 3x; concerning below 1.5x. (5) Pair with CAC payback period (months to recover CAC from gross profit). LTV/CAC tells you if customers are profitable; payback tells you how fast capital recycles. Both matter for healthy unit economics.

How to use it

1. Enter blended CAC (total S&M spend / new customers in same period).
2. Enter ARPU (Average Revenue Per User per month).
3. Enter gross margin % (true margin including hosting, processing, support — typically 65-80% for SaaS).
4. Enter customer lifetime in months OR monthly churn rate (lifetime = 1/churn).
5. Read LTV, LTV/CAC ratio, and tier assessment vs benchmarks.

When to use this tool

• Investor pitch decks — LTV/CAC is one of the headline unit-economics numbers.
• Quarterly board reporting — assessing trajectory of growth quality.
• Comparing customer segments — SMB vs enterprise often have very different ratios.
• Pricing decisions — modeling how price increases affect ratio.
• Marketing budget approval — justifying acquisition spend with healthy LTV/CAC math.

When not to use it

• Single-month or very small samples — CAC and LTV are stable only with sufficient cohort data (100+ customers, 6+ months).
• One-time-purchase businesses — LTV concept doesn't apply cleanly; use CAC vs first-purchase value or repeat-purchase economics.
• Marketplace / transactional businesses — different unit-economics framework needed.
• Brand new products — early CAC is artificially high (Google Ads always starts inefficient); wait for stabilization.

Common use cases

• Onboarding a colleague who needs the same calculation/conversion
• Verifying a number or output before passing it on
• Quick calculation during a typical workday
• Pre-decision sanity-check on inputs and outputs