Unit Economics

LTV/CAC Calculator

Calculate Customer Lifetime Value and Customer Acquisition Cost. The most critical metric for SaaS unit economics and sustainable growth.

Customer Lifetime Value (LTV)

Total revenue you can expect from a customer over their entire relationship with your company.

LTV = (ARPA × Margin%) / Churn%

Average Revenue Per Account × Gross Margin / Monthly Churn

Customer Acquisition Cost (CAC)

Total cost to acquire a new customer, including all sales and marketing expenses.

CAC = S&M Spend / New Customers

Sales & Marketing Expenses / Customers Acquired

How to Calculate LTV

Step 1: Calculate ARPA

Average Revenue Per Account (monthly or annual)

ARPA = Total MRR / Number of Customers

Example: $50,000 MRR / 100 customers = $500 ARPA

Step 2: Determine Gross Margin

Percentage of revenue after direct costs (hosting, support, etc.)

Gross Margin = (Revenue - COGS) / Revenue

Target: 75-85% for SaaS. Example: 80%

Step 3: Calculate Churn Rate

Percentage of customers or revenue lost per month

Churn = Customers Lost / Total Customers at Start

Example: 5 churned / 100 customers = 5% monthly churn

Step 4: Calculate LTV

LTV = ($500 × 0.80) / 0.05 = $8,000

This customer will generate $8,000 in value over their lifetime

How to Calculate CAC

Include in CAC:

Sales Expenses

• Sales team salaries + commissions
• Sales tools (CRM, outreach)
• Sales management overhead

Marketing Expenses

• Marketing team salaries
• Paid advertising (Google, Facebook)
• Marketing tools (automation, analytics)
• Content creation, events, PR

CAC = $100,000 S&M Spend / 50 New Customers = $2,000

Calculate over a consistent period (monthly or quarterly). Track by channel for optimization.

LTV/CAC Ratio Benchmarks

> 5:1 Ratio

Excellent

Highly efficient acquisition. You should invest MORE in sales & marketing to accelerate growth. Your customer economics can support aggressive scaling.

3:1 - 5:1 Ratio

Good

Healthy sustainable growth. This is the sweet spot for most SaaS companies. Solid unit economics with room for continued investment in growth.

2:1 - 3:1 Ratio

Acceptable

Workable but tight. Focus on improving either LTV (reduce churn, increase ARPA) or reducing CAC (optimize channels, improve conversion) before aggressive scaling.

< 2:1 Ratio

Poor

Unsustainable economics. Do NOT scale yet. Fix unit economics first: dramatically reduce churn, increase pricing, or find cheaper acquisition channels.

CAC Payback Period

How long it takes to recover your customer acquisition cost through gross profit.

Payback Period = CAC / (ARPA × Gross Margin%)

Example: $2,000 / ($500 × 0.80) = 5 months

< 6 months

Excellent - Very efficient

6-12 months

Good - Industry standard

> 12 months

Needs improvement

How to Improve LTV/CAC

Increase LTV

→Reduce Churn: Better onboarding, customer success, proactive support
→Increase ARPA: Upsells, cross-sells, annual contracts, value-based pricing
→Drive Expansion: Feature adoption, usage-based growth, premium tiers
→Improve Margins: Automate support, optimize infrastructure costs

Decrease CAC

→Optimize Paid Ads: Better targeting, lower CPC, improved landing pages
→Improve Conversion: Better demos, streamlined signup, compelling messaging
→Build Organic Channels: SEO, content marketing, community building
→Referral Programs: Incentivize customers to bring new customers

Frequently Asked Questions

What is LTV/CAC ratio and why does it matter?

LTV/CAC ratio measures how much value you get from a customer vs. what you spend to acquire them. A 3:1 ratio means every $1 spent on acquisition returns $3 in lifetime value. Ratios below 2:1 indicate unsustainable economics. Above 5:1 suggests you should invest more in growth. Target: 3:1 to 5:1 for healthy SaaS.

How do I calculate Customer Lifetime Value (LTV)?

LTV = (ARPA × Gross Margin %) / Churn Rate. Example: $100/mo ARPA, 80% margin, 5% monthly churn = ($100 × 0.80) / 0.05 = $1,600 LTV. Alternatively: LTV = (ARPA / Churn Rate) × Gross Margin. Include expansion revenue in ARPA for more accurate calculations.

How do I calculate Customer Acquisition Cost (CAC)?

CAC = Total Sales & Marketing Expenses / Number of New Customers Acquired. Include: salaries, advertising, tools, commissions, overhead. Calculate monthly or quarterly. Track by channel (paid, organic, referral) to optimize spend. Blended CAC averages all channels.

What is a good LTV/CAC ratio for SaaS?

Excellent: >5:1 (highly efficient, should invest more), Good: 3-5:1 (healthy sustainable growth), Acceptable: 2-3:1 (workable but tight margins), Poor: <2:1 (unsustainable, fix before scaling). Also check CAC payback < 12 months for full picture.

How can I improve my LTV/CAC ratio?

Increase LTV: 1) Reduce churn (better onboarding, customer success), 2) Increase ARPA (upsells, annual plans, value-based pricing), 3) Drive expansion revenue. Decrease CAC: 1) Optimize ad spend, 2) Improve conversion rates, 3) Build organic channels (SEO, content), 4) Implement referral programs. Focus on the biggest lever first.

Learn More

→ Complete Guide to CAC vs LTV → Essential SaaS Metrics Guide → Unit Economics FAQ

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