LTV:CAC Ratio Calculator for SaaS
Compute customer lifetime value (LTV), customer acquisition cost (CAC) and the LTV:CAC ratio from four numbers: ARPA, gross margin, monthly churn and acquisition spend.
Formulas
These are the definitions used in David Skok, “SaaS Metrics 2.0 – A Guide to Measuring and Improving what Matters” (For Entrepreneurs). CAC there includes all sales and marketing costs of the period divided by the customers they brought in; Andreessen Horowitz, “16 Startup Metrics” (metric #8) adds that a “blended” CAC (all channels, including organic) is not wrong but hides whether paid acquisition is profitable, so compute both if you can.
Rule of thumb, with its source: David Skok’s guideline is an LTV greater than 3 × CAC; he writes that “the best SaaS businesses have a LTV to CAC ratio that is higher than 3, sometimes as high as 7 or 8” and that many healthy companies do not meet it in their early days. It is a guideline from one practitioner, not a law.
FAQ
Why use gross margin and not revenue in LTV?
Because the cost of serving a customer (hosting, LLM tokens, payment fees, support) is not value you keep. Revenue-based LTV overstates how much you can afford to spend on acquisition; a16z’s article makes the same point about revenue versus margin LTV.
My churn is zero. Why does the calculator refuse it?
With zero churn the simple formula gives an infinite lifetime. Use a small but realistic churn rate, or cap the lifetime (for example 5 years = 60 months, i.e. 1.67% monthly churn).
Customer churn or revenue churn?
The simple formula uses customer churn with an average ARPA. If expansion revenue is significant, revenue churn gives a different (often higher) LTV; the churn calculator on this site computes both.
I only know annual churn. What do I enter?
Convert it: monthly churn = 1 − (1 − annual churn)^(1/12). For example 20% annual churn is about 1.84% per month. The churn calculator does this conversion for you.
Is LTV discounted?
No. This is the undiscounted steady-state formula. A financial model can discount future cash flows and let ARPA and churn change over time.