LTV:CAC Ratio Calculator – Guide & Formulas
Calculate the LTV:CAC ratio to assess business sustainability and unit economics health.
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Put these formulas into practice with our instant, step-by-step LTV:CAC Ratio Calculator.
The LTV:CAC Ratio Calculator measures the relationship between Customer Lifetime Value and Customer Acquisition Cost. This ratio is one of the most important metrics for assessing whether a business model is sustainable and scalable.
Key Takeaway
Use the free LTV:CAC Ratio Calculator to calculate the ltv:cac ratio to assess business sustainability and unit economics health. Get instant results with step-by-step explanations.
How to Use the LTV:CAC Ratio Calculator
- Enter your Customer Lifetime Value (LTV).
- Input your Customer Acquisition Cost (CAC).
- The calculator computes your LTV:CAC ratio.
- Use results to assess business sustainability.
The Formula
Variable Definitions
- LTV: Customer Lifetime Value — total revenue from a customer over their lifetime
- CAC: Customer Acquisition Cost — total cost to acquire one customer
- LTV:CAC Ratio: Ratio of lifetime value to acquisition cost
Calculating LTV:CAC for a SaaS business
A SaaS has an LTV of $1,500 and a CAC of $500.
- Step 1: LTV = $1,500, CAC = $500.
- Step 2: LTV:CAC Ratio = $1,500 / $500.
- Step 3: LTV:CAC Ratio = 3.0.
- Step 4: For every $1 spent on acquisition, the business earns $3 in lifetime value.
Frequently Asked Questions
What is a good LTV:CAC ratio?
A good LTV:CAC ratio is 3:1 or higher. This means you earn $3 for every $1 spent on customer acquisition. Ratios below 1:1 indicate you are losing money on each customer.
How can I improve my LTV:CAC ratio?
Improve customer retention to increase LTV, optimize marketing to reduce CAC, upsell and cross-sell to existing customers, and improve product-market fit.
What is the payback period?
The payback period is how long it takes to recover your CAC. Ideally, CAC payback should be under 12 months for healthy unit economics.