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LTV Calculator and LTV:CAC Ratio

What a customer is worth in gross profit, and whether it covers the cost of winning them.

LTV is one of the numbers behind a subscription business. The free course shows how to work with it on real decisions. Learn about MRR, churn and LTV

Your numbers

Revenue per customer
Billing period

Recurring revenue divided by paying customers, before costs.

Calculate from revenue

Revenue minus the cost of serving customers (hosting, support, payment fees), as a share of revenue. The example value is not a benchmark.

Churn and lifetime
Churn is given

Share of paying customers who cancel in a period: customers lost ÷ customers at the start. Not sure? Use the churn calculator.

Acquisition cost
How do you want to enter CAC?

Use costs and customers from the same period. If deals take months to close, shift the period of spend back by that lag.

LTV $2,666.67 · 4.4 : 1

Result

Updates as you type

LTV per customer (gross profit)
$2,666.67
over an expected 33.3 months
LTV:CAC
4.4 : 1

In line with the commonly quoted 3 : 1 rule of thumb.

3 : 1 is a rule of thumb many SaaS teams quote, not a standard. What is healthy depends on margin, payback time and how reliable the churn estimate is.

  • CAC $600
  • Payback 7.5 months (month 9 with churn)

Formula: 80 gross profit per month ÷ 3% churn = 2,666.67

LTV from revenue (before costs): $3,333.33

  • 3% per month = 30.6% per year

Learn about MRR, churn and LTVMeasure churn and NRR from one month's numbers
LTV $2,666.67 · 4.4 : 1

How to read LTV and the LTV:CAC ratio

LTV here is the gross profit an average customer brings over their expected lifetime. It is an expectation built on today's churn: if churn falls, LTV grows, and one lucky month of low churn can make it look far better than it is.

LTV:CAC compares that value with what it costs to win the customer. Below 1 : 1 every new customer loses money. Many SaaS teams quote 3 : 1 as a comfortable level, but it is a rule of thumb, not a standard: a business with a short payback and reliable churn can be healthy below it, and a very high ratio can also mean you are under-investing in growth.

Read the ratio together with payback: two businesses with the same 3 : 1 can wait 6 or 30 months for their money.

Worked example

A subscription product earns $100 per customer per month at an 80% gross margin, so each customer brings $80 of gross profit a month. 3% of customers cancel each month.

LTV = 80 ÷ 0.03 = $2,666.67 over an expected 33.3 months (LTV from revenue: $3,333.33). The company spent $12,000 in a month and won 20 customers, so CAC = $600 and LTV:CAC = 4.4 : 1.

If churn is known per year (30%), don't divide by 12: 30% a year is 2.93% a month, and LTV is $2,731.72. Dividing would give 2.5% and $3,200, 17% too high.

Method and formulas

Churn is first converted to the billing period by compounding: 3% a month is 1 − 0.97¹² = 30.6% a year, not 36%. The calculator never multiplies or divides churn by 12.

c_year = 1 − (1 − c_month)^12      c_month = 1 − (1 − c_year)^(1/12)
gross profit g = ARPA × margin
LTV = g ÷ c                        (capped: g × (1 − (1 − c)^H) ÷ c)
CAC = (paid media + other costs) ÷ new paying customers
LTV:CAC = LTV ÷ CAC
payback = CAC ÷ monthly g
payback with churn = first month t with g × (1 − (1 − c)^t) ÷ c ≥ CAC

LTV assumes a constant churn rate and that a customer pays at the start of each period while still active, so the expected number of payments is 1 ÷ churn. LTV uses gross profit (revenue × margin), because margin is what pays back the acquisition cost; revenue LTV is shown on the side.

With a lifetime cap of H periods, LTV = gross profit × (1 − (1 − churn)^H) ÷ churn. At 0% churn there is no finite LTV without a cap.

CAC is blended: all sales and marketing costs of a period divided by all new paying customers of that period. Simple payback is CAC ÷ monthly gross profit. Payback with churn is the first month in which the expected cumulative gross profit of a new customer reaches CAC; with annual billing it is counted in annual payments.

Questions and answers

How do you calculate LTV?
Multiply the average revenue per customer by the gross margin to get gross profit per period, then divide by the churn rate of the same period: LTV = ARPA × margin ÷ churn. $100 a month at 80% margin and 3% monthly churn gives 80 ÷ 0.03 = $2,666.67. Use gross profit, not revenue: margin is what pays for acquisition.
What is a good LTV to CAC ratio?
Below 1 : 1 each new customer costs more than it brings. Many SaaS teams aim for about 3 : 1, but that is a rule of thumb, not a standard. It hides the time it takes to earn the money back, and it rests on a churn estimate that is often optimistic in the early months. Read it with the payback period.
How do I calculate LTV with 0% churn?
With no cancellations yet the formula divides by zero and LTV is infinite, which no one should plan on. Set a lifetime cap instead (for example 60 months): LTV is then gross profit × the number of months. The cap is your assumption, so say it when you share the number.
Should I use monthly or annual churn?
Either, as long as the conversion is done by compounding. 30% a year is 1 − 0.7^(1/12) = 2.93% a month, not 2.5%. The calculator converts the churn you enter to your billing period and shows the converted value.
Why not include upsells and expansion?
When upsells outweigh cancellations, net revenue churn is negative and the formula would give a negative or infinite LTV. Keep this LTV on customer churn and track expansion separately with net revenue retention (NRR) in the churn and NRR calculator.
How is this different from an LTV curve from cohort data?
The formula assumes the same churn every month. A curve built from real cohorts shows how revenue per customer actually accumulates month by month, including the heavy early churn and the flattening later. Use the formula for planning and the curve once you have a year or more of cohorts.

Terms used here

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