Free calculator

LTV:CAC Ratio Calculator

Enter Margin-adjusted LTV and Fully loaded CAC — every figure updates as you type. Nothing you type leaves your browser.

How do you calculate LTV:CAC Ratio?

The LTV:CAC ratio divides margin-adjusted lifetime value by fully loaded acquisition cost to show how much contribution each acquisition dollar returns. Three-to-one is the conventional floor for a healthy subscription business, but it is a venture-benchmarking heuristic rather than an accounting rule — and a ratio well above it usually signals underinvestment in growth or an overstated LTV rather than excellence.

LTV:CAC ratio

5.49

Contribution returned per unit of acquisition cost. Read as ratio:1.

Net value per customer: $2,243What one customer leaves behind after paying back their own acquisition cost.
CAC ceiling at 3:1: $914The most you could spend per customer and still hit the conventional 3:1 floor.

Results are rounded for display; the calculation runs at full precision.

The maths

How LTV:CAC Ratio is calculated

The formula this calculator runs, written out so you can check it against your own model rather than trust a black box.

LTV:CAC = Margin-adjusted LTV ÷ Fully loaded CAC

Margin-adjusted LTV: Lifetime gross margin per customer: (ARPU ÷ monthly churn) × gross margin. Revenue LTV inflates the ratio by the inverse of your margin.
Fully loaded CAC: All sales and marketing cost for a period — including salaries, commission and benefits — divided by the new customers that spend produced.

Reading the result

What the number is telling you

Bands are directional, not verdicts. Stage, price point and contract length move every one of them, so treat these as a starting point for the conversation rather than a grade.

Below 1:1: Every customer costs more to acquire than they will ever contribute. Acquisition is actively destroying value and more growth makes the position worse, not better. This is a pricing, retention or channel problem, and no amount of scale fixes it.
1:1 to 3:1: Acquisition recovers more than it costs, but thinly. Survivable and common for a young product still finding its channel, provided payback is short and retention is trending the right way. Sustained here, the business needs continuous external funding to grow.
3:1 to 5:1: The conventional healthy band. Enough contribution to fund overhead, product and the next cohort. At this level the more informative question shifts from the ratio to payback period and whether the channels can absorb more spend at the same efficiency.
Above 5:1: Strong on paper, and worth interrogating. Most often it means LTV is overstated by a churn rate measured over too short a window, or that acquisition is underfunded and growth is being left on the table. A ratio this high alongside slow growth is an argument for spending more, not a result to protect.
Returns 0: CAC is zero or missing, so there is nothing to divide by. If acquisition genuinely costs nothing the ratio is undefined rather than infinite — the meaningful figure in that case is net value per customer.

Where 3:1 came from, and what it is worth

The 3:1 convention is a venture-investing rule of thumb, not a derived result. The rough logic behind it: if a customer returns three times their acquisition cost in gross margin, there is enough left over to fund research and development, general overhead and the next cohort's acquisition, and still leave the business profitable at scale. Below that, the model tends to require permanent external funding.

It is a useful heuristic and a poor law. It says nothing about how long the money takes to come back, which is what determines whether you can grow without raising — that is payback period. It assumes a lifetime that has usually been extrapolated rather than observed. And it treats a ratio of 3.0 and 8.0 as points on the same scale when in practice they describe very different problems.

The ratio is only as good as its two estimates

Both inputs are constructions. LTV depends on a churn rate measured over some window and a margin figure that depends on which costs you allocated to delivery. CAC depends on which teams you counted and how you attributed organic customers. Two competent finance teams working from the same underlying business can produce ratios that differ by a factor of two or more, entirely through defensible methodology choices.

Use margin-adjusted LTV. Revenue LTV at 80% gross margin inflates the ratio by 25% — enough to move 2.4:1 to 3:1 on paper alone.
Use fully loaded CAC. Ad spend alone, with no salaries, commonly halves the denominator and doubles the ratio.
Segment before you conclude. A blended 4:1 can easily be a self-serve tier at 8:1 and an outbound motion at 1.2:1, which calls for a decision the blended number hides.

A high ratio is a question, not a trophy

When this calculator returns something above five, the useful response is scepticism in two directions. Either LTV is overstated — a churn rate measured over too short a window, or a lifetime extrapolated past anything observed — or the unit economics are genuinely excellent and you are not spending enough. Businesses with strongly positive unit economics and slow growth are frequently sitting on acquisition budget they could deploy at a worse ratio and a better absolute outcome.

The CAC ceiling output makes that concrete: it is the acquisition cost at which you would land exactly on 3:1. The difference between it and your current CAC is the headroom you have to bid harder, hire more sellers, or enter a more expensive channel. Track the ratio alongside churn and net revenue retention, since a ratio improving while retention falls is usually a mix shift rather than progress.

Definition

Where LTV:CAC Ratio gets argued about

A calculator settles the arithmetic, not the definition — and the definition is where most disagreements about this number actually live. The glossary entry covers the conventions, the edge cases and how Bastle handles each one.

Read the LTV:CAC Ratio definition Browse the metric glossary

Related calculators

Numbers that move together

No subscription metric is meaningful on its own. These are the ones worth running next.

LTV Calculator

Customer lifetime value is the gross margin a customer contributes before they churn — not the revenue they pay.

Learn more

CAC Calculator

Customer acquisition cost is everything spent to win customers divided by the customers actually won.

Learn more

CAC Payback Period Calculator

CAC payback period is the number of months a customer's gross margin must run before it repays what you spent acquiring them.

Learn more

See every free calculator

Frequently asked questions

Is 3:1 actually the right target for LTV:CAC?

It is a reasonable default and not a rule. The 3:1 convention comes from venture benchmarking, on the logic that three times acquisition cost in gross margin leaves enough to cover product, overhead and the next cohort. It ignores timing entirely, which is why it should always be read alongside CAC payback period. A business at 3:1 with six-month payback is in a far stronger position than one at 5:1 with twenty-month payback.

Should the ratio use gross or margin-adjusted LTV?

Margin-adjusted, always. Acquisition cost is paid in cash, so the lifetime value it is compared against has to be the cash a customer leaves behind after the cost of serving them. Using revenue LTV inflates the ratio by the inverse of gross margin — at 80% margin that is a 25% overstatement, which is enough on its own to move a business from below the 3:1 floor to apparently above it.

My ratio is 8:1. Is that good?

It is a signal to check two things before celebrating. First, whether LTV is overstated: a churn rate measured over a few months, or a lifetime extrapolated beyond what you have observed, inflates the numerator quickly. Second, whether acquisition is underfunded. A genuinely high ratio with modest growth usually means there is room to spend more per customer — at a lower ratio and a materially better absolute outcome.

How often should the ratio be recalculated?

Quarterly for reporting, and again whenever you materially change acquisition spend, pricing or the channel mix. Monthly recalculation mostly measures noise, because both inputs are averages over windows longer than a month. What matters more than frequency is that the definitions behind LTV and CAC stay fixed between calculations, so a movement in the ratio reflects the business rather than the method.

Does LTV:CAC work for usage-based pricing?

Less well. The LTV side assumes a stable monthly revenue per customer, and usage-based revenue moves with customer consumption, which can grow substantially after acquisition. For those models the simple division understates lifetime value, sometimes severely. Cohort revenue curves — actual retained margin by signup month — are the better instrument, with the ratio kept as a rough cross-check.

Can the ratio be too high?

In the sense that matters, yes. The ratio measures efficiency per customer, not value created overall, so it improves when you acquire fewer, cheaper customers. A company can raise its ratio by cutting the acquisition spend that was generating most of its growth. If the ratio is comfortably above the conventional band and growth is slower than you want, the ratio is telling you to deploy more capital, not less.

Stop recalculating LTV:CAC Ratio by hand.

Connect Stripe and Bastle keeps LTV:CAC Ratio current — backfilled to your first customer, segmentable, and traceable to the invoices behind it. Free while in beta, no card required.

Start free Explore the live demo