In the book I wrote that you want customer acquisition cost to be a third or less of lifetime value. That's the classic 3:1 rule, and it still holds as a minimum.
But the ratio only tells you half the story. A customer can be worth five times what they cost and still take three years to pay you back. If you're funding growth from your own bank account, that's the half that keeps you up at night. So this calculator gives you both.
How to use the LTV:CAC calculator
- Enter your sales and marketing spend for a period and the new customers you won in the same period. Or switch to entering CAC directly.
- Enter revenue per customer per month (ARPA) and your gross margin.
- Enter monthly churn. If your churn is very low, cap the lifetime at three or five years.
- If your spend and revenue figures include GST, tick the box.
Include everything you spend to win customers in CAC: ad spend, sales wages and commissions, agency fees and tools. Leaving out wages is the most common way to make CAC look better than it is.
How the maths works
CAC = Sales and marketing spend ÷ New customers won LTV = (ARPA × Gross margin) ÷ Monthly churn LTV:CAC ratio = LTV ÷ CAC CAC payback (months) = CAC ÷ (ARPA × Gross margin)
The calculator also shows the share of customers still paying when you reach payback, (1 − churn) raised to the payback months. Customers who leave before then never repay what you spent on them.
A worked example
The calculator opens with $30,000 of sales and marketing spend that wins 60 customers, so CAC is $500. Each customer pays $100 a month at an 80% gross margin, so they generate $80 of gross profit a month. Monthly churn is 2.5%.
- LTV: $80 ÷ 0.025 = $3,200
- LTV:CAC: $3,200 ÷ $500 = 6.4:1
- CAC payback: $500 ÷ $80 = 6.25 months
That's a healthy ratio and close to top-quartile payback. About 85% of customers are still around at month six, so most of them repay their CAC.
What good looks like
These bands come from our guides to the LTV:CAC ratio and CAC payback, which use the Aleph and Benchmarkit SaaS and AI Performance Benchmarks (full-year 2025 data):
| Ratio | What it means |
|---|---|
| Below 1:1 | Each customer loses money (bottom quartile was 1.1x) |
| 1:1 to 3:1 | Thin. Fix churn or CAC before scaling |
| 4:1 to 5:1 | Healthy (median 4.1x) |
| 7:1 and above | Top-tier, or under-investing (top quartile 7.8x) |
For payback, the same report put the B2B SaaS median at 16 months, with under 12 months treated as top-tier, six months or less as top quartile and 24 months or more as bottom quartile. Under 18 months is the broadly accepted target.
A very high ratio isn't always good news. If every customer is hugely profitable, why aren't you buying more of them? Sometimes the answer is fine: a gym can only fit so many members. Just make it a choice.
What to do next
- Get a precise CAC first with our guide to customer acquisition cost.
- Model LTV with expansion and discounting in the LTV Calculator.
- If payback is long, look at annual versus monthly plans: upfront annual payments can repay CAC on day one.
- If CAC is the problem, the book's shoestring growth techniques are built for exactly that.
Frequently asked questions
What is a good LTV to CAC ratio?
3:1 is the long-standing minimum: each dollar spent winning a customer returns three dollars of gross profit. The Aleph and Benchmarkit report (2025 data) found a median of 4.1x across SaaS companies, with the top quartile at 7.8x. Below 1:1 you lose money on every customer. Well above 8:1 can mean you're not spending enough on growth.
Should LTV:CAC use revenue or gross profit?
Gross profit. Using revenue overstates the ratio, and Aleph and Benchmarkit name it the most common distortion. For a business with a 60% gross margin, revenue-based LTV makes the ratio look 67% better than it really is. AI products with heavy model costs can see an even bigger gap, so always calculate LTV after the direct costs of serving the customer.
What costs should go into CAC?
Everything you spend to win new customers: advertising, sales and marketing wages, commissions, agency and freelancer fees, events, and the software your sales and marketing teams use. Leave out the cost of serving customers once they've joined. If one person splits time between sales and delivery, allocate their wage by time spent. Be consistent from period to period.
How can I shorten my CAC payback period?
There are three levers. Lower CAC through referrals, partnerships and better conversion. Raise monthly gross profit through pricing, packaging or cheaper delivery. Or collect cash sooner with annual plans paid upfront, which repay CAC on day one even if the accounting payback stays the same. Reducing early churn also helps, because more customers stay long enough to repay their cost.
Built on The Subscription Playbook
This tool turns frameworks from Robert Coorey's book into something you can use in minutes. Robert is the author of The Subscription Playbook and a Director at BPAG Accountants. More about Robert.