The LTV formula
LTV = Average order value x Purchases per year x Lifespan (years) x Gross margin
This calculator uses gross-profit LTV, not revenue LTV. Comparing revenue to acquisition cost overstates how much you can spend - the product still has to be paid for.
LTV:CAC ratio
The ratio of lifetime value to acquisition cost is the health check investors and operators use most:
- Below 1:1 - every new customer destroys value.
- 1:1 - 3:1 - profitable but fragile; overheads can wipe it out.
- 3:1 - 5:1 - healthy and scalable.
- Above 5:1 - you can afford to spend more on growth.
Subscription businesses
If 5% of subscribers cancel each month, the average customer stays 1 / 0.05 = 20 months, or 1.67 years. Enter your monthly price, 12 purchases per year and 1.67 years.
Frequently asked questions
What is a good LTV:CAC ratio?
About 3:1 is the widely used benchmark for a healthy, scalable business.
What is CAC payback?
The number of months of gross profit it takes to earn back what you paid to acquire a customer. Under 12 months is generally good.