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CAC and LTV Calculator

What a customer costs to acquire, what they are worth in gross profit, and how long the acquisition takes to pay for itself.

✓ Recalculates as you type✓ The formula is printed on the page✓ Your figures never leave the tab

Acquisition and retention

Spend and customers should cover the same period. Margin is the gross margin on the recurring revenue.

Acquisition spend currencyCustomers acquired

Revenue per customer currency/moGross margin%Monthly churn%

Method

The arithmetic

Acquisition cost is spend divided by the customers it produced. Expected lifetime is modelled as the reciprocal of the monthly churn rate, so a 5% monthly churn implies twenty months. Lifetime value is then the gross profit per month across that lifetime — deliberately gross profit rather than revenue, because a revenue-based lifetime value overstates the ratio by exactly the margin. Payback divides the acquisition cost by the monthly gross profit.

CAC = spend ÷ customers · lifetime months = 100 ÷ monthly churn% · LTV = revenue per month × margin × lifetime months · ratio = LTV ÷ CAC · payback months = CAC ÷ (revenue per month × margin)

Worked example

One run through the numbers

Spending 20,000 to acquire 100 customers puts CAC at 200. At 50 per month, an 80% gross margin, and 5% monthly churn, the expected lifetime is 20 months and lifetime value is 800 — an LTV to CAC ratio of 4.0. The acquisition pays for itself after 5 months, because each month returns 40 of gross profit.

Swap in your own figures — the result recalculates as you type.

Before you act on this

Where this number misleads

Building lifetime value on revenue instead of gross profit is the single most common inflation in this calculation. At an 80% margin a revenue-based LTV would read 1,000 rather than 800, and the ratio 5.0 rather than 4.0, without anything about the business having changed.
The reciprocal-of-churn lifetime is a deliberately simple model. It assumes a constant monthly churn rate, and real cohorts churn hardest early and then flatten, which usually makes this estimate conservative for survivors and optimistic for a brand new cohort. Treat it as an order of magnitude, not a forecast.
Acquisition spend should include what it actually took to acquire: media, agency or contractor fees, and any incentive or discount given to close the first sale. Counting media alone produces a CAC that no finance review will recognise.
There is no universally correct LTV to CAC ratio. Below 1.0 the acquisition destroys value outright; above that, how much cushion you need depends on how long the payback is and how confident you are in the churn figure. Anyone quoting a single target ratio is describing their own business, not yours.
Payback period often matters more than the ratio, because it is what your cash position feels. A long payback with a strong ratio still needs the cash to survive the gap — and the ad budget calculator is where you check what that gap looks like at the spend you are planning.

Asked often

CAC and LTV Calculator: questions that come up

Should CAC use all marketing spend or only paid media?

Use whatever you are trying to decide about. A blended CAC across all marketing spend tells you what the business as a whole pays for a customer; a paid-only CAC tells you what the next unit of ad budget buys. They answer different questions and the blended figure is almost always the lower of the two.

How do I get a monthly churn rate?

Divide the customers lost in a month by the customers you had at the start of that month. If your billing is annual, use the annual retention figure and convert it rather than dividing by twelve, because churn compounds.

Why does lifetime value use gross margin?

Because the money available to pay back an acquisition is gross profit, not revenue. Serving costs, payment fees, and support scale with the customer, and a lifetime value that ignores them is counting money the business never gets to keep.

What if my churn rate is zero?

Then the model has no answer: dividing by zero gives an infinite lifetime, so the tool returns nothing rather than a number that looks calculated. In practice a genuinely zero monthly churn means the measurement window is too short.

Carry on

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