CAC LTV ratio calculator — do your unit economics actually work?

About this calculator

Plug in your CAC, monthly ARPU, gross margin, and churn to see whether each customer makes you money or costs you money. Best run once you have 10+ paying customers and a real churn number — before you pour another dollar into paid acquisition. The ratio is the SaaS investor's first diligence question; this is the answer.

Quick definitions tap to toggle

CAC Customer acquisition cost: What it costs you, on average, to win one new paying customer. Total sales and marketing spend divided by new customers in the same period. more →
LTV Customer lifetime value: The total profit one customer brings in across their entire time as a customer. The ceiling on how much you can afford to spend acquiring them. more →
ARPU Average revenue per user: How much one customer pays you per month on average. Just total monthly revenue divided by paying customers.
Churn Churn rate: The percent of customers who cancel each month. Small swings here move LTV a lot — 4% monthly churn is half the LTV of 2% monthly churn. more →
Gross margin Profit per dollar of revenue: The percent of revenue you keep after the cost of serving the customer (hosting, support, payment fees). 70-85% for most SaaS.

Your numbers

Customer acquisition cost (CAC)

Total acquisition spend / customers acquired. Include salaries, not just ad spend.

Monthly ARPU

Average revenue per user per month. Subscription + usage.

Gross margin

ARPU minus COGS, as a %. SaaS averages 70-85%; AI-heavy SaaS often lower.

Monthly churn rate

% of customers lost per month. 5%/mo is high; 1-2%/mo is good for SaaS.

The verdict

LTV / CAC ratio

4.0×

LTV $800 on $200 CAC

Healthy. The unit economics scale. Spend more on CAC — you have margin to grow.

LTV

$800

CAC payback

5.0 mo

How this is calculated

LTV = (monthly_ARPU × gross_margin / 100) / (monthly_churn / 100).

Ratio = LTV / CAC.

CAC payback = CAC / (monthly_ARPU × gross_margin / 100). The months it takes a customer to pay back the cost of acquiring them.

This is the SaaS LTV formula from David Skok's 2008 essay "Startup Killer: the Cost of Customer Acquisition." The 3× LTV/CAC benchmark and 12-month payback target are standard across modern SaaS — Bessemer's State of the Cloud reports use the same thresholds.

What this doesn't tell you

Whether buyers want the product. A 5× ratio with 100 customers means nothing if there's no demand at scale. Unit economics work at one stage and break at another.
Why your CAC is what it is. The ratio doesn't pull apart channel mix. $200 blended CAC can hide a $40 organic channel and a $1,200 paid channel — and you should be killing the paid one.
Whether your churn is the right shape. 5% monthly churn evenly distributed is different from 30% in month 1 and 0% after. The fix is different in each case (onboarding vs value vs saturation).

Use this with

Framework

The Lean Startup

Eric Ries's Lean Startup, stripped of consultant fluff. Validated learning, Build-Measure-Learn, MVP, pivot or persevere. What it means and where it gets misapplied.

Spoke

Pricing Validation

Most founders pick a price by looking at competitors and shaving 20%. That's not pricing strategy, it's matching. Real pricing validation produces a price you can defend against your own ego and your buyer's pushback.

Question

How do you find product-market fit?

Use Rahul Vohra's Superhuman PMF Engine. (1) Survey active users with the Sean Ellis question 'how would you feel if you could no longer use this?'. (2) Segment respondents by 'very disappointed' / 'somewhat disappointed' / 'not disappointed'. (3) Profile your fans (the very disappointed) to find your real ICP. (4) Build a roadmap that's half doubling-down on what fans love and half closing the on-the-fence blockers. (5) Re-run quarterly. The score should rise.

Frequently asked questions

Is LTV / CAC ≥ 3 really the rule?

It's the SaaS heuristic — David Skok popularized it. The reasoning: anything under 1 loses money, 1-3 only works if your retention is perfect, and 3+ leaves enough margin to fund growth and survive churn shocks. For non-SaaS (transactional, marketplaces) the number changes — high-frequency repeat businesses can survive at 2; one-shot transactional needs 5+. Use 3 as the default and adjust if your business has different repeat dynamics.

Why monthly ARPU and monthly churn, not annual?

Because churn compounds monthly. Annual churn of 30% sounds like 30%, but monthly that's about 2.9% — and the LTV formula needs to know how fast you bleed customers. Monthly numbers are also closer to what you can actually measure in the first 6 months of a SaaS business.

What do I do if my ratio is below 1?

Either your CAC is too high or your retention is too low. Pull CAC apart: which channel is the worst offender? Cut it or fix the funnel. Pull retention apart: are you losing customers in the first 30 days (onboarding problem), 90 days (value problem), or 12+ months (saturation)? Each diagnosis has a different fix. Don't try to fix both at once.

Does this account for gross margin?

Yes — LTV is calculated as (ARPU × gross_margin) / churn, not just ARPU / churn. Margin matters: a $100/month customer at 90% gross margin contributes $90/month to LTV; at 30% they contribute $30. SaaS with bad COGS (heavy AI usage, expensive third-party APIs) can look ARPU-healthy and still be CAC-LTV broken.

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