CAC/LTV Calculator

CAC is the total cost of acquiring a new customer, calculated by dividing total sales and marketing spend by the number of new customers acquired in the same period. For example, if you spend $10,000 on marketing in a month and acquire 50 new customers, your CAC is $200. CAC includes all marketing expenses (ads, content, tools), sales team salaries, and any other costs directly tied to acquiring customers. Knowing your CAC is essential for understanding whether your growth is profitable.

LTV (also called CLV or CLTV) is the total revenue you can expect from a single customer over their entire relationship with your business. For subscription businesses, LTV = Average Revenue Per User (ARPU) × Gross Margin × Average Customer Lifespan. For example, a customer paying $50/month with 80% gross margin who stays for 25 months has an LTV of $50 × 0.80 × 25 = $1,000. LTV helps you understand how much you can afford to spend acquiring each customer.

The benchmark for a healthy SaaS or subscription business is an LTV:CAC ratio of 3:1 or higher — meaning each customer generates at least 3 times what it cost to acquire them. A ratio below 1:1 means you are losing money on every customer. Between 1:1 and 3:1 is a warning zone. Above 5:1 might indicate you are under-investing in growth and could grow faster by spending more on acquisition. Most venture capitalists look for 3:1+ before investing.

The payback period is how long it takes to recover the cost of acquiring a customer. Formula: Payback Period (months) = CAC / (ARPU × Gross Margin). For example, if your CAC is $500, ARPU is $100/month, and gross margin is 80%, the payback period = $500 / ($100 × 0.80) = 6.25 months. A healthy payback period for SaaS businesses is 12 months or less. Longer payback periods strain cash flow and increase risk.

Churn rate is the percentage of customers who cancel or stop paying in a given period (usually monthly). A 5% monthly churn means you lose 5 out of every 100 customers each month. Churn directly determines average customer lifespan: Lifespan = 1 / Churn Rate. At 5% monthly churn, average lifespan is 20 months. At 2% churn, it is 50 months. Reducing churn is often more impactful than increasing acquisition because it multiplies LTV.

Strategies to reduce CAC include: (1) Improve conversion rates — optimize landing pages, sales funnels, and onboarding. (2) Focus on organic channels — SEO, content marketing, and word-of-mouth have lower marginal costs than paid ads. (3) Implement referral programs — existing customers acquire new ones at low cost. (4) Better targeting — narrow your ad targeting to high-intent audiences. (5) Sales efficiency — use automation and better qualification to reduce sales cycle time. (6) Improve product — a better product generates more organic growth.

To increase LTV, focus on three levers: (1) Increase ARPU — upsell premium plans, cross-sell additional products, implement usage-based pricing. (2) Improve gross margin — reduce hosting costs, automate support, negotiate better vendor rates. (3) Reduce churn — improve product quality, enhance customer success, build switching costs. Reducing monthly churn from 5% to 3% increases average lifespan from 20 to 33 months — a 65% increase in LTV without changing anything else.

ARPU (Average Revenue Per User) is the average monthly revenue generated per customer. Calculate it by dividing total monthly recurring revenue (MRR) by total active customers. For example, if your MRR is $50,000 and you have 500 customers, ARPU = $100/month. ARPU can vary significantly if you have multiple pricing tiers — some businesses track ARPU by segment (small, medium, enterprise) for more accurate LTV calculations.