How it’s calculated
LTV is the gross profit a customer generates over their lifetime: average monthly revenue per account × gross margin ÷ monthly churn (1 ÷ churn is the average lifetime in months). CAC is what you spend to win one customer: sales and marketing spend ÷ new customers acquired. The ratio is LTV ÷ CAC.
We also show CAC payback: CAC ÷ monthly gross profit per customer = months to recoup the acquisition cost. This is the standard simplified model — it ignores expansion revenue and discounting, which is fine for a directional read.
lifetime (months) = 1 ÷ monthly churn LTV = ARPA × gross margin × lifetime ratio = LTV ÷ CAC CAC payback = CAC ÷ (ARPA × gross margin)
Worked example
A SaaS charges $99/month per account at 80% gross margin with 2.5% monthly churn, and spends $900 to acquire each customer.
- Average customer lifetime: 40 months
- Lifetime value (LTV): $3,168
- LTV:CAC ratio: 3.5 : 1 — inside the healthy band
- CAC payback: ~11.4 months
What’s a good number?
Below 1:1 you lose money on every customer. ~3:1 is the conventional minimum for a healthy SaaS. 3:1–5:1 is the strong zone. Far above 5:1 often means you're under-investing in growth. CAC payback under 12 months is good; under 6 is excellent.