CAC & LTV Calculator
Calculate Customer Acquisition Cost, Lifetime Value, LTV:CAC ratio, and payback period for your business.
Results
Visualization
How It Works
The CAC & LTV Calculator helps you measure whether your customer acquisition spending is profitable by calculating how much you spend to acquire each customer, how much profit you'll earn from them over their lifetime, and how quickly you'll break even. These metrics are essential for determining if your business model is sustainable and where to allocate your marketing budget. This tool is designed for both quick estimates and detailed planning scenarios. Results update instantly as you adjust inputs, making it easy to compare different approaches and understand how each variable affects the outcome. For best accuracy, use precise measurements rather than rough estimates, and consider running multiple scenarios to establish a realistic range of expected results.
The Formula
Variables
- Total Marketing Spend — All money spent on marketing and sales to acquire new customers during a specific period, including ads, salaries, software, and promotional costs
- New Customers Acquired — The count of new, paying customers you gained during the same period you're measuring marketing spend
- Avg Monthly Revenue per Customer — The average recurring revenue from one customer each month (for subscriptions) or average monthly revenue if you have repeat customers
- Gross Margin — The percentage of revenue left after subtracting the direct cost of goods or services (revenue minus cost of goods sold, divided by revenue)
- Avg Customer Lifetime — The average number of months a customer stays with your business before churning or leaving
Worked Example
Let's say you run a SaaS platform and spent $50,000 on marketing last quarter, acquiring 100 new customers. Each customer pays an average of $500 per month, and your gross margin is 70% (meaning 70% of revenue is profit after direct costs). Your average customer stays for 18 months. First, CAC = $50,000 / 100 = $500 per customer. Next, LTV = $500 × 0.70 × 18 = $6,300 per customer over their lifetime. The LTV:CAC ratio is $6,300 / $500 = 12.6, meaning you earn $12.60 in lifetime value for every dollar spent acquiring a customer—an excellent ratio. Finally, payback period = $500 / ($500 × 0.70) = 1.43 months, so you recover your acquisition cost in just over a month. This business is highly profitable.
Practical Tips
- Track your Customer Acquisition Cost by channel (Facebook ads, Google, referrals, etc.) rather than blending them all together—you may find some channels are far more efficient than others, allowing you to shift budget to winners
- Use conservative estimates for customer lifetime when you're new to your market; many businesses overestimate how long customers will stay, leading to inflated LTV calculations and poor budget decisions
- Aim for an LTV:CAC ratio of at least 3:1 to ensure profitability; anything below 3:1 suggests your customer acquisition is too expensive relative to the value they bring over their lifetime
- Update your CAC monthly rather than quarterly—marketing efficiency changes quickly with seasonal trends, campaign performance shifts, and market competition, so stale data leads to poor decisions
- Include all costs in your marketing spend calculation, not just ad spend; add salaries for marketing staff, tools, agency fees, and customer success costs that support acquisition to avoid artificially low CAC numbers
Frequently Asked Questions
What is a good LTV:CAC ratio for a business?
A healthy LTV:CAC ratio is generally 3:1 or higher, meaning you earn at least $3 in lifetime customer value for every $1 spent acquiring them. For SaaS and subscription businesses, many aim for 5:1 or higher because they have predictable recurring revenue. Early-stage or high-growth companies may temporarily accept lower ratios, but anything below 2:1 indicates unsustainable unit economics that need fixing.
Why does gross margin matter in calculating LTV?
Gross margin represents the actual profit available from each customer after paying the direct costs of delivering your product or service. Revenue alone is misleading—if you earn $500 from a customer but spend $300 producing the product, only $200 is available to cover acquisition costs and other business expenses. Using gross margin ensures your LTV calculation reflects real profit, not just top-line revenue.
What should I do if my payback period is too long?
A long payback period (typically more than 12 months) means you're waiting too long to recover your acquisition investment, which strains cash flow and increases business risk. You can improve it by reducing your CAC (cutting expensive marketing channels or improving ad efficiency), increasing monthly revenue per customer (raising prices or upselling), or improving gross margin (reducing product costs). Focus on quick wins first, like eliminating your least efficient marketing channels.
How do I calculate customer lifetime if my business is brand new?
If you have no historical data, start by researching industry benchmarks for your business type—many industry reports publish average customer lifetime by sector. Alternatively, use a conservative estimate like 12-24 months and plan to refine it as you collect data. Track your actual churn rate (percentage of customers leaving each month) from day one, then calculate lifetime = 1 / monthly churn rate, and update your LTV calculation quarterly as real data accumulates.
Can I use this calculator for non-subscription businesses like e-commerce?
Yes, but you'll need to adapt the inputs. Instead of monthly subscription revenue, use the average monthly revenue per customer based on repeat purchases. For a clothing store with customers buying 4 times per year at $150 each, average monthly revenue is ($150 × 4) / 12 = $50. Adjust your average customer lifetime based on how long you retain repeat customers—often 24-60 months for e-commerce—then calculate LTV the same way as subscription businesses.
Sources
- HubSpot: Customer Acquisition Cost (CAC) — Definition & Calculator
- Investopedia: Customer Lifetime Value (LTV)
- Mixpanel: LTV Guide for SaaS & Subscription Businesses
- Harvard Business Review: The Economics of E-Commerce
- Stripe: Financial Metrics for Subscription & SaaS Businesses