LTV Calculator,
lifetime value & LTV:CAC ratio.

Field guide

What is Customer Lifetime Value — and why does the LTV:CAC ratio define your business?

Customer Lifetime Value (LTV, also written CLV) is the total revenue a business can expect from a single customer account over the entire duration of their relationship. It is arguably the single most important metric for evaluating the long-term financial health of a business, because it directly answers the question: how much is a customer worth?

LTV alone is not very useful. Its power emerges when compared to the cost of acquiring that customer — the Customer Acquisition Cost (CAC). The LTV:CAC ratio tells you whether your business model is fundamentally sustainable, and if so, how efficiently you are growing.

The SaaS LTV formula

For subscription businesses, LTV is calculated using the monthly churn rate:

Where ARPU (Average Revenue Per User) is your total Monthly Recurring Revenue (MRR) divided by the number of active paying customers, and churn rate is the percentage of customers who cancel each month.

The underlying logic: if 5% of customers churn each month, the average customer stays for 1 ÷ 0.05 = 20 months. If they pay $50/mo, their lifetime revenue is $50 × 20 = $1,000.

For a more accurate picture, apply a gross margin adjustment:

This gives you the gross profit contribution of a customer rather than their raw revenue — which is what actually flows to the bottom line. A SaaS company with 80% gross margins and $50 ARPU at 5% churn has an LTV of ($50 × 0.80) ÷ 0.05 = $800 per customer.

The e-commerce LTV formula

For non-subscription businesses, LTV is modelled using purchase behaviour:

For example: a customer who spends $75 per order, buys 4 times per year, and remains active for 3 years has a LTV of $75 × 4 × 3 = $900.

These inputs come from your data — specifically cohort analysis of customer purchase history. Be conservative: use actual historical retention data rather than optimistic assumptions about lifespan.

Why the LTV:CAC ratio matters

The LTV:CAC ratio is the clearest signal of whether a business can grow profitably:

• Below 1:1 — You destroy value with every customer acquired. The business is unsustainable at current economics. Immediate action required: reduce CAC, increase ARPU, or drastically improve retention.
• 1:1 to 3:1 — Below the minimum viable threshold. You are earning revenue, but not enough profit to cover overhead and generate returns. Focus on increasing LTV (better onboarding, upsells, reducing churn) or cutting CAC (organic channels, better conversion).
• 3:1 (the gold standard) — The benchmark first popularised by David Skok and widely adopted across SaaS. At 3:1, every $1 spent on acquisition returns $3 in lifetime value. Most venture-backed SaaS companies target this ratio for Series A and beyond. It indicates strong, repeatable unit economics.
• 5:1 to 8:1 — Excellent. Your acquisition engine is highly efficient. At this ratio, you may actually be leaving growth on the table — consider increasing marketing spend to accelerate user growth while the ratio holds.
• Above 8:1 — Potentially under-investing in growth. While the economics are strong, a very high ratio in a competitive market can mean competitors are growing faster by accepting lower returns per dollar spent. This is context-dependent.

CAC payback period

Alongside LTV:CAC, the CAC payback period is the number of months until you recover the cost of acquiring a customer. It is calculated as:

For SaaS: monthly revenue per customer is ARPU (or ARPU × gross margin if adjusted). For e-commerce: monthly revenue = AOV × annual frequency ÷ 12.

Best-in-class SaaS companies recover CAC in 12 months or less. A payback period under 18 months is generally considered acceptable. Above 24 months indicates a cash-flow risk — you fund growth with working capital for two years before breaking even per customer.

How to improve your LTV:CAC ratio

There are four levers:

• Reduce churn (SaaS): Churn has the most dramatic effect on LTV. Going from 5% to 3% monthly churn increases LTV by 67% (from 20 to 33 average lifetime months). Invest in onboarding, customer success, and product engagement.
• Increase ARPU through expansion revenue: Upsells, cross-sells, and seat expansions grow revenue from existing customers at near-zero acquisition cost. Net Revenue Retention above 100% (negative churn) makes LTV mathematically infinite with the simple formula.
• Reduce CAC through organic channels: Content marketing, SEO, referral programs, and community-led growth can reduce blended CAC significantly over time, improving the ratio without changing LTV at all.
• Improve conversion rates: Better product onboarding and in-app conversion reduces the cost per paid customer from the same acquisition spend.

Limitations of the simple LTV formula

The SaaS LTV formula (ARPU ÷ churn) assumes a constant monthly churn rate and constant ARPU over the customer lifetime — both simplifications. In reality:

• Churn is typically highest in months 1–3 (early-stage customers who did not achieve their desired outcome) and lower for tenured customers. Cohort-based churn analysis gives a more accurate picture.
• ARPU changes over time due to expansions, contractions, and price changes. A more accurate LTV model uses Net Revenue Retention (NRR) rather than simple churn.
• The formula does not account for the time value of money (discounted cash flow LTV). For a 3–5% monthly discount rate, the NPV-adjusted LTV is approximately 20–40% lower than the nominal figure.

For a quick strategic benchmark, the simple formula is sufficient. For investor-grade metrics or pricing decisions, use cohort analysis in your analytics platform.

Disclaimer

This calculator provides estimates based on simplified formulas and the inputs you provide. Actual LTV and LTV:CAC ratios depend on cohort-level customer data, pricing strategy, market dynamics, and business model specifics. Results are for educational and planning purposes only and should not be used as the sole basis for financial or investment decisions. Consult a qualified financial analyst or business advisor for investor-grade metrics.