What is the LTV:CAC ratio?
It compares what a customer is worth over their lifetime (LTV) with what it costs to win them (CAC). It answers a simple question: is each new customer worth what you pay to get them?
LTV and CAC formulas
LTV = average order value × purchases per year × years × gross margin
LTV:CAC = LTV ÷ CAC
Example: 50 × 4 × 2 × 40% = 160 lifetime profit. With a CAC of 60, the ratio is 2.67.
What is a good LTV to CAC ratio?
A ratio of around 3:1 is widely used as a healthy target in SaaS and ecommerce. Below 1:1 you lose money on each customer. Far above 5:1 can mean you are under-investing in growth.
How to improve your ratio
Raise LTV with repeat purchases, higher order values and better retention, or lower CAC by improving conversion rate and CPA. Track churn with the churn calculator logic: lost ÷ starting customers.
LTV:CAC ratio formula with example
LTV = average order value × orders per year × years retained × gross margin
LTV:CAC = LTV ÷ CAC
Example: customers spend $60 per order, order 4 times a year, stay 2 years, and you keep a 50% margin. LTV = 60 × 4 × 2 × 0.5 = $240. If acquiring a customer costs $80, the ratio is 240 ÷ 80 = 3:1.
How to calculate CAC for marketing
CAC = total sales and marketing cost ÷ new customers
Include ad spend, agency and freelancer fees, marketing tools, and the share of salaries spent on acquisition. Using ad spend alone gives the cost per acquisition, which is useful for campaigns but understates the full cost of winning a customer.
Payback period: how fast you earn back CAC
Payback (months) = CAC ÷ monthly gross profit per customer
A 3:1 ratio is less comforting if it takes three years to get your money back. Many subscription businesses aim to recover CAC within about 12 months.
How to use this calculator
Enter average order value, purchases per year, customer lifespan (years), gross margin and customer acquisition cost. The result updates as you type, so you do not need to press Calculate after each change. Use Copy result to paste the figure into a report, or Share link to send the calculator with your numbers already filled in.
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Frequently asked questions
Should LTV use revenue or profit?
Profit (gross margin) gives a truer picture, which is what this calculator uses.
What counts in CAC?
At minimum ad spend; ideally all sales and marketing costs divided by new customers.
Is a higher LTV:CAC ratio always better?
Not always. A very high ratio such as 6:1 can mean you are under-investing in growth and could spend more to win customers while staying profitable.
Results are estimates based on the numbers you enter and are not financial advice.