What is a good LTV:CAC ratio?

A ratio of 3:1 is the widely cited benchmark for SaaS businesses — each customer generates three times the cost to acquire them. Below 1:1 means you are losing money on every customer. Above 5:1 may indicate underinvestment in growth.

How is LTV calculated here?

LTV = (ARPU × Gross Margin %) ÷ Monthly Churn Rate. This gives the gross-profit-adjusted lifetime value. Dividing by churn rate is equivalent to multiplying by average customer lifespan (1 ÷ churn).

What is CAC payback period?

Payback period = CAC ÷ (ARPU × Gross Margin %). It tells you how many months of gross profit are needed to recover the acquisition cost. Most SaaS investors want this under 12 months.

Should I use blended or paid CAC?

Both are useful. Blended CAC includes all sales and marketing costs divided by all new customers (organic + paid). Paid CAC isolates only paid channels. Use blended for overall unit economics health and paid CAC for channel-level efficiency.

What gross margin should I use?

Use your gross margin on subscription revenue only — typically 60–85% for pure SaaS. Exclude professional services, one-time setup fees, or hardware costs if those are not recurring.

Why does a lower churn rate raise LTV so much?

LTV is inversely proportional to churn. Halving your churn rate doubles your LTV because customers stay twice as long. This is why churn reduction often has a higher ROI than reducing CAC.

LTV to CAC Ratio Calculator

Name: LTV to CAC Ratio Calculator
Availability: InStock
Author: Nham Vu

Enter your ARPU, churn rate, gross margin, and CAC to instantly see your LTV:CAC ratio and payback period.

Revenue & Cost Inputs

ARPU — Avg Revenue Per User / month ($)

Gross Margin (%)

Monthly Churn Rate (%)

CAC — Customer Acquisition Cost ($)

Enter your inputs on the left to see results.

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Summary

Enter your ARPU, churn rate, gross margin, and CAC to instantly see your LTV:CAC ratio and payback period.

How it works

Enter your Average Revenue Per User (ARPU) per month.
Enter your gross margin percentage (typically 60–80% for SaaS).
Enter your monthly customer churn rate.
Enter your Customer Acquisition Cost (CAC) — total sales and marketing spend divided by new customers acquired.
The tool computes LTV = (ARPU × Gross Margin) ÷ Churn Rate, then the LTV:CAC ratio and payback period.

Use cases

Assess whether your SaaS unit economics are healthy before scaling spend.
Pitch investors with a clear LTV:CAC ratio from real numbers.
Model the impact of reducing churn on customer lifetime value.
Determine maximum sustainable CAC given your current LTV.
Benchmark payback period against the 12-month target most VCs expect.
Stress-test scenarios: higher gross margin, lower churn, or higher ARPU.
Guide budget allocation between customer success and sales teams.
Identify at which pricing tier your unit economics become viable.

Frequently Asked Questions

Last updated: 2026-07-01 · Reviewed by Nham Vu