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LTV / CAC Calculator
Healthy ratio for your SaaS or product.
How this tool works
LTV/CAC is the ratio that decides whether your SaaS scales or burns. LTV is what a customer pays you over their entire lifetime; CAC is what acquiring them costs. If LTV is 3× CAC or more, you have a healthy business. Below 1×, you lose money on every new customer.
The formula incorporates gross margin (gross revenue isn't profit) and churn (customers leaving fast crush LTV). A company with 10%/mo churn has 10-month LTV; with 2% it has 50 months — 5× LTV at the same ARPU.
Formula
LTV = (ARPU × Gross margin) / Monthly churnRatio = LTV / CACPayback months = CAC / (ARPU × Gross margin)
Common pitfalls
- Using annual churn when formula needs monthly
- Calculating CAC without including sales team salaries (they're not free)
- Assuming 100% gross margin — real SaaS is 70-85%
- Not segmenting: average LTV/CAC can look good while one segment bleeds
Frequently asked questions
- What ratio do VCs consider healthy?
- Pre-Seed/Seed: VCs want path to 3×. Series A: 3-4× sustained. Series B+: 4-5×. Above 5× is exceptional. Below 1× = zero investability.
- What payback period is acceptable?
- <12 months: excellent. 12-18: acceptable for B2B. 18-24: borderline, needs narrative. >24: only if LTV very high and churn very low.
- How do I lower CAC?
- Organic content/SEO (long-term), referrals (high NPS), product-led growth (free tier that converts). Cutting paid until validation helps — only if you have organic traction.
- What about my churn?
- If >5% monthly there's a serious retention problem. Probable: weak onboarding, no aha moment, high pricing vs value, poor support. Calculate freemium conversion with the freemium calculator.