{
  "slug": "ltv-to-cac-ratio",
  "title": "LTV:CAC Ratio Calculator",
  "heading": "LTV to CAC Ratio Calculator",
  "category": "financial",
  "url": "https://www.revenuelab.fyi/toolbox/ltv-to-cac-ratio",
  "summary": "Compare the lifetime value of a customer against what it costs to acquire them.",
  "description": "LTV:CAC compares the total gross profit a customer generates over their lifetime against the cost of acquiring them, giving a single ratio that tells you whether your unit economics work at all. A ratio of 3:1 is the classic minimum bar for a healthy SaaS business — below that, you're spending too much to acquire customers relative to what they're worth, and growth destroys value rather than creating it. A ratio above 5:1 sounds great on paper but can also mean you're under-investing in growth and leaving market share on the table, since if unit economics are that favorable you should probably be spending more on acquisition, not less. LTV is highly sensitive to your churn assumption: a small change in monthly churn rate compounds into a large change in expected customer lifetime, so always sanity check the churn number driving your LTV rather than trusting a single historical average blindly, especially for a young cohort that hasn't lived through a full renewal cycle yet.",
  "formula": "LTV = (ACV × Gross Margin %) ÷ Annual Churn Rate; Ratio = LTV ÷ CAC",
  "dateModified": "2026-09-30",
  "run_url": "https://www.revenuelab.fyi/api/public/calc?tool=ltv-to-cac-ratio",
  "inputs": [
    {
      "id": "acv",
      "label": "Annual contract value (ACV)",
      "kind": "number",
      "hint": null,
      "default": 15000,
      "unit": "$",
      "min": 1,
      "max": null
    },
    {
      "id": "grossMargin",
      "label": "Gross margin",
      "kind": "number",
      "hint": null,
      "default": 75,
      "unit": "%",
      "min": 1,
      "max": 100
    },
    {
      "id": "annualChurn",
      "label": "Annual revenue churn rate",
      "kind": "number",
      "hint": null,
      "default": 12,
      "unit": "%",
      "min": 0.5,
      "max": 100
    },
    {
      "id": "cac",
      "label": "CAC per customer",
      "kind": "number",
      "hint": null,
      "default": 7500,
      "unit": "$",
      "min": 1,
      "max": null
    }
  ],
  "outputs": [
    {
      "id": "ratio",
      "label": "LTV:CAC ratio",
      "format": "decimal",
      "hint": null,
      "primary": true
    },
    {
      "id": "ltv",
      "label": "Customer lifetime value",
      "format": "currency",
      "hint": null,
      "primary": false
    },
    {
      "id": "avgLifetimeYears",
      "label": "Implied average customer lifetime (years)",
      "format": "decimal",
      "hint": null,
      "primary": false
    },
    {
      "id": "cac",
      "label": "CAC used",
      "format": "currency",
      "hint": null,
      "primary": false
    }
  ],
  "worked_example": {
    "inputs": [
      "Annual contract value (ACV): 15000 $",
      "Gross margin: 75 %",
      "Annual revenue churn rate: 12 %",
      "CAC per customer: 7500 $"
    ],
    "outputs": [
      "LTV:CAC ratio: 12.5",
      "Customer lifetime value: $93,750",
      "Implied average customer lifetime (years): 8.3",
      "CAC used: $7,500"
    ]
  },
  "how_to": {
    "title": "How to use this",
    "steps": [
      "Enter annual contract value (acv) ($).",
      "Enter gross margin (%).",
      "Enter annual revenue churn rate (%).",
      "Enter cac per customer ($).",
      "Read your ltv:cac ratio on the right — it updates as you type.",
      "Hit Share to keep the scenario or send it to someone."
    ]
  },
  "scenarios": [
    {
      "name": "Conservative",
      "description": "Lower-end numbers — what if things land soft?",
      "values": {
        "acv": 9000,
        "grossMargin": 45,
        "annualChurn": 7.199999999999999,
        "cac": 4500
      }
    },
    {
      "name": "Typical",
      "description": "Defaults — the most common real-world setup.",
      "values": {
        "acv": 15000,
        "grossMargin": 75,
        "annualChurn": 12,
        "cac": 7500
      }
    },
    {
      "name": "Ambitious",
      "description": "Higher-end numbers — what if things really pop?",
      "values": {
        "acv": 24000,
        "grossMargin": 100,
        "annualChurn": 19.200000000000003,
        "cac": 12000
      }
    }
  ],
  "limitations": [
    "Results are estimates before tax, fees, and inflation unless an input explicitly covers them.",
    "Rates are treated as fixed for the whole period — variable-rate products will drift from this projection.",
    "This is educational maths, not financial advice. Check anything contractual with the lender or your accountant."
  ],
  "faq": [
    {
      "q": "What LTV:CAC ratio should I target?",
      "a": "3:1 is the widely cited healthy minimum. Below 1:1 you're losing money on every customer. 3:1 to 5:1 is the sweet spot most investors want to see — good unit economics without obviously under-investing in growth. Consistently above 6-7:1 often means you should be spending more aggressively on acquisition."
    },
    {
      "q": "Why does churn rate matter so much to this ratio?",
      "a": "LTV divides by churn, so it's inversely and non-linearly sensitive to it: cutting annual churn from 15% to 10% increases implied lifetime by 50%, which increases LTV by the same 50% holding everything else constant. Small retention improvements move this ratio far more than small CAC or pricing improvements."
    },
    {
      "q": "Should I use gross margin or gross revenue in the LTV formula?",
      "a": "Always gross profit (revenue times gross margin), not raw revenue — the ratio is meant to compare acquisition cost against actual profit contribution, and using raw revenue overstates LTV by ignoring hosting, support, and other cost-of-service expenses."
    },
    {
      "q": "Is a simple churn-based LTV formula accurate enough?",
      "a": "It's a reasonable approximation for mature cohorts with fairly stable churn, but it assumes constant churn forever, which understates real LTV if churn improves with tenure (common) or overstates it if a young cohort's churn rate hasn't stabilized yet. For precision, model cohort-based retention curves instead of a flat rate."
    }
  ],
  "related": [
    "https://www.revenuelab.fyi/toolbox/cac-payback-period",
    "https://www.revenuelab.fyi/toolbox/net-revenue-retention",
    "https://www.revenuelab.fyi/toolbox/saas-gross-margin"
  ],
  "license": "CC-BY-4.0",
  "citation": "RevenueLab — LTV:CAC Ratio Calculator (https://www.revenuelab.fyi/toolbox/ltv-to-cac-ratio)"
}