LTV (customer lifetime value) is the gross profit a customer generates while they stay: average monthly revenue × gross margin ÷ monthly churn. CAC (customer acquisition cost) is marketing and sales spend divided by new customers in the same period. The LTV:CAC ratio tells you whether acquisition pays off, and payback shows how many months of gross profit it takes to recover the CAC.
How to use
- Enter the average monthly revenue per account (ARPA) and the gross margin.
- Choose how to enter customer loss: monthly churn or average lifetime in months.
- Fill in marketing and sales spend and the new customers for the same period.
- Read LTV, CAC, LTV:CAC and payback, the warnings and the sensitivity table.
- Export as PNG, PDF, CSV or Markdown, or create a link to review with the team.
What each field asks for
| Field | What to enter |
|---|---|
| Currency | Only changes how values are formatted. |
| Average monthly revenue per account (ARPA) | Recurring revenue for the month divided by active customers. |
| Gross margin | Revenue minus the direct costs of serving the customer (infrastructure, support, fees). |
| How to enter customer loss | Monthly churn or average lifetime in months: one is enough. |
| Monthly churn | Customers who cancel in the month ÷ customers at the start of the month. |
| Average customer lifetime | Only used when the mode is average lifetime. |
| Marketing spend in the period | Media, content, events and acquisition tools. |
| Sales spend in the period | Salaries, commissions and tools for the sales team. |
| New customers in the same period | Use the same period as the spend. |
Example
A fictional subscription software charges each customer $450 a month on average, with a 78% gross margin and 2.5% monthly churn. Each customer generates $351 of gross profit a month and stays 40 months on average: an LTV of $14,040. In the period, marketing and sales cost $300,000 to bring in 60 customers: a CAC of $5,000. The LTV:CAC ratio is 2.8:1, below the 3:1 reference, and payback is 14.2 months. The sensitivity table shows that cutting churn to 1.88% would take the ratio to 3.7:1.
When to use
- Before raising the acquisition budget, to check that each new customer pays off.
- When reviewing price, plan or margin, to measure the effect on customer value.
- To compare channels or segments, running the numbers with each one's CAC and churn.
- When preparing a board conversation about growth efficiency.
Frequently asked questions
How do I calculate LTV?
In the simple form used here: LTV = ARPA × gross margin ÷ monthly churn. With an ARPA of 100, an 80% margin and 2% churn, monthly gross profit is 80 and the average lifetime is 50 months, so LTV is 4,000.
What goes into CAC?
All the spend to win new customers in a period: media, content, events, tools, and marketing and sales salaries and commissions. Divide it by the number of new customers in the same period. Leaving salaries out usually underestimates CAC.
What is a good LTV:CAC ratio?
The most quoted market reference is 3:1 or more. Below 1, each customer loses money. Above 5, there may be room to invest more in acquisition. These are rules of thumb that vary with the business model and the company's stage.
What is CAC payback?
It is the number of months of gross profit a customer must generate to pay back their own acquisition cost: CAC ÷ (ARPA × gross margin). Up to 12 months is considered healthy in many markets; above 18, cash risk grows.
Why use gross margin rather than revenue?
Because revenue includes the costs of serving the customer, such as infrastructure and support. Calculating LTV from revenue inflates customer value and makes acquisition look cheaper than it is.
What if churn is zero?
With zero churn the lifetime becomes infinite and LTV has no ceiling, which does not help any decision. Use churn observed in cohorts over a few months or a realistic average lifetime; the tool warns you in this case.
What are the limits of this model?
It does not discount money over time, ignores revenue expansion (upgrades) and assumes constant churn. It works well to compare scenarios and get the order of magnitude; for a detailed financial valuation, use real cohorts.