CAC = total acquisition spend ÷ new customers acquired. LTV = gross profit per customer (ARPA × gross margin) ÷ churn rate. LTV:CAC ratio and CAC payback period (months to recover acquisition cost from gross profit) together indicate whether the unit economics of acquiring customers are sustainable.
Frequently Asked Questions
What is considered a healthy LTV:CAC ratio?
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A commonly cited benchmark is 3:1 or higher — meaning a customer generates at least 3 times their acquisition cost in lifetime gross profit. Below roughly 3:1, the business may be spending too much to acquire customers relative to what they're worth.
What is CAC payback period and why does it matter separately from LTV:CAC?
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CAC payback measures how many months it takes to recover the acquisition cost from gross profit — even with a good LTV:CAC ratio, a long payback period (12+ months) ties up cash for longer, which matters a lot for cash-constrained early-stage companies regardless of the eventual lifetime value.
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Scope: Computes Customer Acquisition Cost (CAC), Customer Lifetime Value (LTV) and the resulting LTV:CAC ratio and CAC payback period, used to assess the unit economics of acquiring customers.
Calculation logic
CAC = Total sales & marketing spend for the period ÷ Number of new customers acquired in that period.
LTV = Average revenue per customer per period × Gross margin percentage × Average customer lifetime (or, equivalently, 1 ÷ monthly churn rate, if churn is entered instead of lifetime directly).
LTV:CAC ratio = LTV ÷ CAC — commonly cited healthy benchmarks are above 3:1, though this varies by business model and stage.
CAC payback period (months) = CAC ÷ (Average monthly revenue per customer × Gross margin percentage).
Inputs and assumptions
Sales & marketing spend used for CAC should include the fully loaded cost (salaries, tools, ad spend) attributable to acquisition, per the user's entered total.
LTV calculation using churn rate assumes a constant churn rate over the customer lifetime — actual churn patterns (e.g., higher early churn) are not separately modelled unless the user adjusts the input.
Exclusions and edge cases
Does not separate CAC by acquisition channel — this is a blended, company-wide calculation unless the user runs it separately per channel.
Benchmark ratios cited (e.g., 3:1) are general industry convention, not a formal standard, and vary materially by business model.
Sources
No external regulatory source applies — this is a general financial formula, not a statutory computation.
Review status: reviewed and approved by CA Nikhil Gupta on 18 July 2026.
Guides that use this calculator
Background, worked examples and the rules behind these numbers.