LTV/CAC Ratio Calculator Formula
Understand the math behind the ltv/cac ratio calculator. Each variable explained with a worked example.
Formulas Used
LTV:CAC Ratio
ltv_cac_ratio = cac > 0 ? ltv / cac : 0Net Value Per Customer
net_value_per_customer = ltv - cacCustomer ROI
roi_pct = cac > 0 ? ((ltv - cac) / cac) * 100 : 0Variables
| Variable | Description | Default |
|---|---|---|
ltv | Customer Lifetime Value (LTV)(USD) | 1500 |
cac | Customer Acquisition Cost (CAC)(USD) | 400 |
How It Works
How to Calculate the LTV:CAC Ratio
Formula
LTV:CAC Ratio = Customer Lifetime Value / Customer Acquisition Cost
This single number distills the economics of your customer base. A ratio of 3:1 or higher generally indicates a healthy, scalable business model. Below 1:1 means you spend more acquiring customers than they are worth. Very high ratios (above 5:1) may suggest you are under-investing in growth and leaving market share on the table.
Worked Example
A SaaS company estimates customer LTV at $1,500 and spends $400 to acquire each customer.
- 01LTV:CAC = $1,500 / $400 = 3.75
- 02Net Value Per Customer = $1,500 - $400 = $1,100
- 03Customer ROI = ($1,100 / $400) x 100 = 275%
Frequently Asked Questions
What is the ideal LTV:CAC ratio?
The widely cited benchmark is 3:1 -- you earn $3 in lifetime value for every $1 spent on acquisition. Ratios below 1:1 are unsustainable. Ratios above 5:1 often mean you could invest more aggressively in growth.
How can I improve the LTV:CAC ratio?
Increase LTV by reducing churn, upselling, and raising prices. Decrease CAC by improving conversion rates, targeting better-fit customers, and optimizing marketing channels. Both levers work together.
Learn More
Guide
Understanding SaaS Metrics
A comprehensive guide to SaaS metrics including MRR, ARR, churn rate, LTV, CAC, and the Rule of 40. Learn what to track and how to benchmark your SaaS business.
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