LTV:CAC Ratio Calculator
The ratio that tells you whether your business model actually works. Enter your numbers and find out if you're building a company or subsidizing one.
Understanding LTV:CAC — The Metric That Rules Them All
A 1:1 LTV:CAC ratio means you're paying a dollar to make a dollar. That's not a business, that's a hobby. Here's what the numbers actually mean.
The LTV Formula
LTV = (ARPU x Gross Margin %) / Monthly Churn Rate
This gives you the total gross profit you'll earn from a customer over their lifetime. The key insight: churn is the denominator. Even a small improvement in churn has an outsized impact on LTV. Going from 5% to 4% monthly churn increases LTV by 25%.
Why Payback Period Matters More Than You Think
LTV:CAC ratio tells you if the math eventually works. Payback period tells you how long you need to fund the gap. A 5:1 ratio with a 36-month payback means you need deep pockets. A 3:1 ratio with an 8-month payback means you're cash-efficient and can reinvest faster.
| Payback Period | Verdict | Implication |
|---|---|---|
| < 6 months | Excellent | Very capital-efficient; reinvest aggressively |
| 6-12 months | Strong | Healthy for most growth-stage SaaS |
| 12-18 months | Okay | Standard but watch your runway |
| 18-24 months | Concerning | Requires strong retention to work |
| 24+ months | Danger Zone | Unless you're enterprise with 95%+ retention |
Two Levers, One Ratio
You can improve LTV:CAC from either side. Most companies obsess over CAC (understandable — it's the thing that shows up on the credit card statement). But reducing churn by 1% often has a bigger impact than cutting ad spend by 20%. The smartest SaaS companies work both sides simultaneously. See how we approach both acquisition and retention →
