Business
LTV:CAC Ratio Calculator
Works the ratio of lifetime value to acquisition cost, which is a heuristic rather than a rule.
Result
The revenue ratio flatters low-margin businesses. The gross-profit ratio is the number worth managing, because that is the money actually available to fund the next customer.
Get a Free Business AuditHow the calculation works
Lifetime value divided by acquisition cost, with the payback period shown alongside. The commonly cited target ratios come from particular kinds of business, usually subscription software, and applying them to a business with a different cost structure or capital position produces a confident wrong answer.
What moves the number
- Whether lifetime value uses margin or revenue.
- Whether acquisition cost includes sales labour.
- Payback period, which the ratio ignores.
- Capital available to fund the gap.
Where this one goes wrong
The ratio ignores timing entirely, which is why payback period matters more for a business funding acquisition from cash flow: a strong ratio with a long payback can be unaffordable while a weaker ratio that pays back in weeks is comfortable. Look at both. The ratio is also only as good as its two inputs, and since both are commonly calculated generously the result is frequently flattering in both directions at once.
Before you quote
- Calculate payback period alongside the ratio.
- Verify that both inputs are calculated honestly.
- Treat published target ratios as heuristics, not rules.
Questions
About this calculator
What ratio should I aim for?
The commonly cited targets come from particular kinds of business, usually subscription software, and are heuristics rather than rules. What matters more is your own payback period and whether you have the capital to fund the gap.
Why does payback period matter?
Because the ratio ignores timing. A strong ratio with a long payback can be unaffordable for a business funding acquisition from cash flow, while a weaker ratio that pays back in weeks is comfortable. Both figures are needed.
How can the ratio be misleading?
Both inputs are commonly calculated generously: lifetime value on revenue with optimistic retention, acquisition cost excluding sales labour. Each error pushes the ratio the same way, so the result can be flattering twice over.
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How to use this calculator
- Customer lifetime value ($). Enter your own figure; the page starts at $3,200.
- Customer acquisition cost ($). Enter your own figure; the page starts at $800.
- Gross margin (%). Enter your own figure; the page starts at 50%.
- Monthly value per customer ($). Used to work out how long CAC takes to pay back.
The result updates as you type, so you can try a figure, see what it does to ltv:cac ratio, and change it back. Nothing you enter is sent anywhere or saved.
A worked example
These are the figures the calculator opens with. Every number in the results column below is produced by the same calculation the page runs, so you can follow it through before putting your own figures in.
What goes in
| Input | Value |
|---|---|
| Customer lifetime value | $3,200 |
| Customer acquisition cost | $800 |
| Gross margin | 50% |
| Monthly value per customer | $120 |
What comes out
| Result | Value |
|---|---|
| LTV:CAC ratio main result | 4.0× |
| Ratio on gross profit | 2.0× |
| CAC payback period | 1 yr 1 mo |
| Profit per customer after CAC | $800 |
On gross profit the ratio is 2.0×. Below 3× each new customer ties up cash for 1 yr 1 mo before contributing anything.
How sensitive the answer is
Holding everything else steady and changing only customer lifetime value, this is what happens to ltv:cac ratio. It is worth knowing which of your inputs the answer actually hinges on, and which barely move it.
| Customer lifetime value ($) | LTV:CAC ratio |
|---|---|
| $1,600 | 2.0× |
| $2,400 | 3.0× |
| $3,200 example above | 4.0× |
| $4,800 | 6.0× |
| $6,400 | 8.0× |
Every other input is held at the example value while this one changes, which is not how a real job behaves. Treat it as a guide to which number matters most, not as five separate quotes.
What each figure means
- Customer lifetime value ($)
- A money amount, starting at $3,200.
- Customer acquisition cost ($)
- A money amount, starting at $800.
- Gross margin (%)
- A percentage, between 0 and 100, starting at 50%.
- Monthly value per customer ($)
- Used to work out how long CAC takes to pay back.
What the results tell you
| Result | What it is |
|---|---|
| LTV:CAC ratio | The headline result. A number. |
| Ratio on gross profit | A number. |
| CAC payback period | A number. |
| Profit per customer after CAC | A money figure. |
Where these figures usually mislead
Business calculations assume the inputs are steady. Seasonality, a few large customers, and slow payment all break that assumption. A figure that looks healthy annually can still leave you short in a given month.
Keep going
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