About this calculator
LTV (Customer Lifetime Value) and CAC (Customer Acquisition Cost) are the central metrics of subscription and recurring-revenue businesses. The LTV/CAC ratio tells you whether your unit economics work: each customer must be worth meaningfully more than the cost to acquire them, with enough margin to cover fixed overhead and grow.
The formulas
LTV = (ARPU × gross margin%) / monthly churn%. LTV/CAC ratio = LTV / CAC. Payback = CAC / (ARPU × gross margin%).
Common benchmarks
- LTV/CAC ≥ 3 — the canonical "healthy SaaS" target.
- Payback ≤ 12 months for SMB SaaS; ≤ 18 months for mid-market; ≤ 24 months for enterprise.
- Monthly churn under 3% for SMB; under 1.5% for mid-market; under 0.5% for enterprise.
- Net Revenue Retention > 100% means expansion outpaces churn — the gold standard.
Why LTV is sensitive to churn
LTV = (monthly contribution) ÷ (monthly churn rate). If contribution is $40 and churn is 3%, LTV = $1,333. Drop churn to 2%: LTV = $2,000 — a 50% jump from a 1 percentage-point change. This is why reducing churn is often higher-leverage than acquiring more customers — every customer you retain extends LTV non-linearly.
Common LTV/CAC mistakes
- Ignoring gross margin — using ARPU instead of contribution. Overstates LTV by 10–30%.
- Using cohort average churn during a fast-growth period — new customers haven’t had time to churn yet. Use cohort-aged data when possible.
- Mixing acquired CAC with organic — organic customers should be in the LTV but not in CAC denominator. Separate paid and organic in the math.
- Ignoring expansion — for businesses with seat-based or usage-based pricing, expansion revenue should be added to LTV, not ignored.