LTV to CAC Ratio Calculator
Compares the value of a customer with the cost of winning one.
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The formula
LTV = ARPA × gross margin ÷ churn CAC = sales and marketing cost ÷ new customers ratio = LTV ÷ CAC
The ratio compares what a customer brings in with what it cost to win them. A ratio of 3 is a rule of thumb from investors, and the right level depends on your cash, growth and stage.
What to watch out for
Since LTV rests on churn, the ratio moves with it. Run it again with a higher churn figure, and read it alongside CAC payback, since a good ratio can still take a long time to turn into cash.
Frequently Asked Questions
How do I calculate LTV:CAC?
Divide LTV by CAC. 50 a month at 80% margin and 3% churn gives an LTV of 1,333.33. 30,000 spent to win 100 customers gives a CAC of 300.00. The ratio is 4.44.
What is a good LTV:CAC ratio?
A ratio of 3 is a common investor rule of thumb, not a law. Treat it as a prompt to look closer, because it says nothing about how long the money takes to come back.
How reliable is the ratio?
Only as reliable as the churn figure. If churn is 6% rather than 3%, the same inputs give 2.22. With little data, treat it as a rough range.