CAC, LTV & LTV/CAC Ratio Calculator
Estimate customer acquisition cost, lifetime value, and unit economics for your startup. Enter ARPU, churn or lifetime, and acquisition costs to see simple metrics and payback period.
Estimate CAC, LTV and LTV/CAC for Your Startup
Enter your acquisition costs, new customers, ARPU, and churn or lifetime to see simple startup unit economics. Understand your customer acquisition cost, lifetime value, and how they compare.
Understanding CAC, LTV, and Unit Economics
What is CAC (Customer Acquisition Cost)?
Customer Acquisition Cost (CAC) is the total cost of acquiring a new paying customer. It includes all sales and marketing expenses—advertising, salaries, tools, content creation, events, and any other costs directly tied to bringing in new customers. The basic formula is:
For example, if you spent $50,000 on marketing last month and acquired 500 new customers, your CAC would be $100 per customer.
What is LTV (Customer Lifetime Value)?
Customer Lifetime Value (LTV) estimates the total revenue a single customer will generate throughout their entire relationship with your business. This calculator uses a simplified model:
Where ARPU is Average Revenue Per User per period, Gross Margin is the percentage of revenue remaining after direct costs, and Expected Lifetime can be calculated as 1/churn rate or provided directly.
What Does the LTV/CAC Ratio Mean?
The LTV/CAC ratio compares how much value a customer generates over their lifetime versus how much it costs to acquire them. It's a key metric for understanding whether your business model is sustainable.
Important: These thresholds are rough heuristics, not universal rules. Context matters—early-stage startups, different industries, and various business models may have very different healthy ranges.
Why Gross Margin and Churn Matter
Gross Margin determines how much of each revenue dollar actually contributes to covering acquisition costs and generating profit. A SaaS company with 80% gross margins keeps $0.80 of every dollar; a retail business with 30% margins keeps only $0.30.
Churn Rate determines how long customers stay. If 5% of customers leave each month, the average customer lifetime is 1/0.05 = 20 months. Higher churn means shorter lifetimes and lower LTV. Even small improvements in retention can dramatically increase LTV.
Common Pitfalls and Limitations
This calculator uses simplified formulas that have significant limitations:
- •Constant churn assumption: The 1/churn formula assumes churn is constant over time. In reality, churn often varies—new customers may churn faster, and long-term customers may be more loyal.
- •No discounting: A dollar received today is worth more than a dollar received two years from now. Sophisticated LTV models discount future cash flows.
- •Ignores expansion revenue: Customers may upgrade, buy add-ons, or increase usage over time. This calculator doesn't capture that upside.
- •No segmentation: Different customer segments may have vastly different CAC and LTV. Averaging can hide important dynamics.
- •CAC attribution challenges: Determining which costs go into CAC and properly attributing them to customer acquisition can be complex.
When You Need More Advanced Models
Consider more sophisticated unit economics analysis when:
- ✓Cohort-based LTV: Track how specific groups of customers behave over time to get more accurate lifetime estimates.
- ✓Discounted cash flow: Apply time value of money to future revenue streams for more accurate present values.
- ✓Customer segmentation: Calculate CAC and LTV for different segments (enterprise vs SMB, channel, geography) to optimize strategy.
- ✓Probabilistic models: Use survival analysis or probabilistic models to better estimate customer lifetimes and uncertainty.
Important Disclaimer
This calculator is for educational purposes only. The metrics and thresholds presented are simplified approximations based on common startup heuristics. They should not be used for investment decisions, fundraising projections, valuations, or critical business planning. This tool does not provide financial, investment, legal, or business advice. Always consult with qualified professionals for important decisions.
Frequently Asked Questions
Not necessarily. The '3x rule' is a rough heuristic, not a universal standard. Context matters significantly: early-stage startups investing heavily in growth might intentionally run lower ratios; some industries naturally have different economics; and the time horizon matters (a 3x ratio over 5 years is very different from 3x over 6 months). Additionally, if your LTV/CAC is very high (say 10x), you might be underinvesting in growth. Use this as a starting point for analysis, not a definitive answer.
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