LTV / CAC Ratio Calculator
LTV/CAC tells you whether growth pays back. Enter ARPU, gross margin, monthly churn, and CAC; get lifetime value, the ratio, and payback period.
The formula
LTV equals ARPU times gross margin, divided by monthly churn. Payback equals CAC divided by ARPU times gross margin. The ratio is LTV divided by CAC.
FAQ
Why divide by churn to get LTV?+
Under a constant-churn assumption, expected lifetime equals 1 / monthly churn. Contribution margin per month times expected lifetime equals LTV.
What if churn is not constant?+
Fit an actual retention curve and integrate. This calculator uses the simple constant-churn approximation because most stages of SaaS are close enough for a decision.
Should I use gross margin or contribution margin?+
Contribution margin (revenue minus variable cost to serve) is more accurate. Gross margin is a reasonable proxy for early-stage SaaS.
Is 3:1 always the target?+
It is a benchmark, not a law. A 3:1 with 24-month payback burns cash. A 2:1 with a 6-month payback can be fine.
How does this handle expansion revenue?+
It does not. Add net revenue retention effects by adjusting ARPU upward or churn downward (negative churn).