LTV / CAC calculator
Are you paying $400 to acquire a customer worth $200? This is how you find out.
What this tool does
The LTV/CAC ratio is the single most diagnostic number in any subscription business. It answers a brutal question — for every dollar you spend acquiring a customer, how many dollars do they ever give back? Below 1, you are paying customers to use your product. Below 3, you are technically alive but in trouble. Above 3 is where real businesses live.
How to use it
- Calculate average revenue per customer per month.
- Calculate gross margin per customer (revenue minus the variable cost of serving them).
- Calculate average customer lifespan in months — usually 1 ÷ monthly churn rate.
- Multiply the three together for LTV.
- Divide total acquisition spend (ads + sales salaries + tools) by number of customers acquired to get CAC.
- LTV ÷ CAC = your ratio.
Why it matters
Founders fall in love with growing top-line revenue. Investors and the founders who survive past year three fall in love with LTV/CAC. The ratio tells you whether growth is creating value or destroying it, and it's the first number a serious acquirer will ask about when they look at your business.
Questions people actually ask.
What's a good LTV/CAC ratio?
3:1 is the rule-of-thumb floor for SaaS. Below 1:1 means each customer loses you money. Above 5:1 sometimes means you should be spending more on acquisition — you have more headroom than you're using.
Should I include payroll in CAC?
Yes. Fully-loaded CAC includes the sales team's salary, the marketer's salary, ad spend, tools, and any agency fees. The number is uncomfortably high once you do this honestly — that's the point.
What about referrals?
Pure referrals (no incentive paid) have effectively zero CAC and dramatically improve the blended ratio. Track them separately so you can see whether your paid-acquisition channels are actually healthy on their own.