LTV CAC Calculator

The formula

ARPU

Average revenue per user per month.

Gross margin %

The share of revenue left after the direct cost of serving the customer — hosting, support, payment fees, third-party costs.

Monthly churn %

The share of customers lost each month. It must be above zero, since it is the denominator.

CAC

Customer acquisition cost — total sales and marketing spend divided by customers acquired.

Worked example

ARPU 79 a month, 82 percent gross margin, 4.5 percent monthly churn, CAC 950.

• Lifetime = 0.82 ÷ 0.045 = 18.22 months
• LTV = 18.22 × 79 = 1,439.56
• Ratio = 1,439.56 ÷ 950 = 1.52

LTV 1,439.56 against a CAC of 950 — a ratio of 1.52, which this tool flags as caution rather than healthy.

What the ratio bands in this tool mean

The calculator marks 3.0 and above as healthy, between 1.0 and 3.0 as caution, and below 1.0 as a warning. Below 1.0 you are paying more to acquire a customer than that customer will ever return, so growth destroys money and does it faster the better it goes. Between 1 and 3 the business works but leaves little room for overhead, and payback tends to be slow enough that growth has to be funded from somewhere. These are the thresholds this tool applies — treat them as a common convention rather than a law, and check them against your own overhead and payback period.

Margin is in the numerator for a reason

The lifetime figure is gross margin divided by churn, not simply one divided by churn, so LTV is measured in contribution rather than in revenue. That matters: a business with 40 percent margins and one with 85 percent margins at the same ARPU and churn have wildly different real values per customer, and comparing them on revenue-based LTV would hide it. If you have seen a larger LTV quoted elsewhere for the same inputs, check whether margin was applied at all.

Churn dominates the result

Because it sits in the denominator, small changes in churn move LTV disproportionately. Dropping the example from 4.5 to 3.0 percent stretches lifetime from 18.22 to 27.33 months and lifts LTV to 2,159 — a ratio of 2.27 from that change alone. Nothing else in this calculation moves the answer that far, which is why retention work usually beats acquisition work in a business with a weak ratio.

The ratio hides the timing

A 3:1 ratio built on a five-year lifetime and one built on a one-year lifetime are not the same business, because the first ties up cash far longer. The companion number is the payback period — CAC divided by monthly ARPU times gross margin — which here is 950 ÷ (79 × 0.82) = 14.7 months. That is how long before the customer has repaid what it cost to win them, and it is the figure that decides whether you can afford to grow.

Common questions

What is a good LTV to CAC ratio?

This calculator treats 3.0 and above as healthy, 1.0 to 3.0 as caution and below 1.0 as a warning. Those bands are a widely used convention rather than a universal rule — what actually matters is whether the margin left over covers your overhead and whether the payback period is short enough for you to fund growth.

How is customer lifetime calculated here?

Gross margin divided by monthly churn. At 82 percent margin and 4.5 percent churn that gives 18.22 months. Because margin is applied at this stage, the resulting LTV is expressed in contribution rather than revenue.

Why does the calculator reject a churn rate of zero?

Because it is the denominator, and dividing by zero implies an infinite lifetime and an infinite LTV. If your measured churn genuinely rounds to zero over a short window, use a longer period where at least some cancellations occurred.

What is the payback period and why does it matter?

It is CAC divided by monthly gross profit per customer — 950 ÷ (79 × 0.82) = 14.7 months in the example. It answers a question the ratio cannot: how long your money is tied up before a customer has paid for their own acquisition. Two businesses with identical ratios can have very different cash needs.