Free calculator
Free LTV:CAC calculator
The single most telling ratio in a subscription business: how much a customer is worth versus what they cost to acquire. Enter monthly revenue per customer, gross margin, churn, and acquisition cost.
Last updated: September 2026
Is a customer worth more than they cost
= Rs. 1.5k
Sales plus marketing divided by new customers = Rs. 6k
- LTV
- Rs. 26,250.00
- CAC
- Rs. 6,000.00
- LTV : CAC
- 4.38:1
- CAC payback
- 5.7 months
How the formula works
LTV = ARPU times gross margin divided by monthly churn. The LTV:CAC ratio divides that by acquisition cost. Above 3:1 is generally healthy; below 1:1 you lose money on every customer. CAC payback shows how many months of contribution recover the acquisition spend.
Worked example
Customers pay Rs. 1,500 a month at a 70 percent gross margin and 4 percent churn. LTV is Rs. 26,250. With a Rs. 6,000 CAC the ratio is 4.4:1 with payback under six months, which supports spending more on acquisition.
How to use the calculator
- Step 1 - Enter monthly revenue per customer (ARPU)
Average monthly revenue across customers, before costs.
- Step 2 - Enter gross margin
Percentage of revenue left after serving the customer - hosting, support, and delivery. Skipping this overstates LTV.
- Step 3 - Enter monthly churn
The share of customers leaving each month. At 4% churn the average customer lasts about 25 months.
- Step 4 - Enter customer acquisition cost (CAC)
All-in cost to acquire one paying customer, including sales and marketing salaries, not just ad spend.
- Step 5 - Read the ratio and payback
Above 3:1 is generally healthy; payback under 12 months supports self-funded growth.
What affects the result
The LTV:CAC ratio is most sensitive to churn - a customer at 2 percent monthly churn is worth roughly twice the LTV of one at 4 percent. Gross margin decides how much of that revenue is yours. CAC is commonly understated when salaries or tooling are excluded. Trend matters more than a single snapshot: early cohorts usually churn faster, and expansion revenue now and then can lift LTV without new signups.
Common mistakes
- Using revenue instead of gross margin in LTV; hosting and support costs are real.
- Counting only ad spend as CAC when salaries of sales staff are part of acquisition.
- Assuming churn stays constant forever; early cohorts usually churn faster.
- Chasing a very high ratio by underspending on growth when the market allows more.
Frequently asked questions
Why 3:1 specifically?
Below about 3:1 most businesses struggle to fund growth from their own economics; far above it may signal underinvestment in sales.
Should payback be shorter than 12 months?
Ideally yes for self-funded growth, since cash recovered within a year can fund the next cohort of customers.
How do annual plans change this?
Annual prepayment improves cash timing but not the ratio itself; model the discount you give for annual terms honestly.
What is the LTV:CAC formula?
LTV = (ARPU × gross margin) / monthly churn rate. The LTV:CAC ratio divides that LTV by customer acquisition cost. For example, Rs. 26,250 LTV divided by Rs. 6,000 CAC gives a 4.4:1 ratio.
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Results are arithmetic on the numbers you enter, not predictions. Validate important figures with an accountant before making financial commitments.