The LTV/CAC ratio answers the only unit-economics question that matters: is a customer worth more than they cost to win? This calculator computes lifetime value from your ARPU, margin and churn, divides by CAC, and shows your payback period.
The formula
LTV = (ARPU × Gross Margin) ÷ Monthly Churn, then Ratio = LTV ÷ CAC. The churn division is doing the heavy lifting: 3% monthly churn implies an average customer lifetime of ~33 months. Payback period = CAC ÷ monthly gross profit per customer.
Worked example
A SaaS charges $100/month at 75% gross margin with 3% monthly churn, spending $600 to acquire a customer. LTV = ($100 × 0.75) ÷ 0.03 = $2,500. Ratio = 2,500 ÷ 600 = 4.2× — healthy. Payback = 600 ÷ 75 = 8 months — the cash comes back well inside a year.
How to read the result
3× or better is the benchmark investors quote; below 1× you lose money on every customer. Two honest caveats: churn is the most gameable input (monthly vs annual cohorts differ wildly), and a great ratio with a 30-month payback can still kill a startup that runs out of cash first — check runway alongside it.
What is a good LTV to CAC ratio?
3:1 is the widely used benchmark for healthy SaaS. Below 1:1 means every customer loses money; far above 5:1 may mean you’re underinvesting in growth.
What counts as CAC?
All sales and marketing spend in a period divided by new customers won in that period — including salaries, tools and ads, not just ad spend.
Why does gross margin matter for LTV?
Because revenue you spend delivering the service was never yours to keep. LTV should count profit per customer, not revenue.
What payback period is acceptable?
Under 12 months is strong; 12-18 is common; beyond 24 months strains cash even when the LTV/CAC ratio looks great.