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LTV and CAC calculator: lifetime value, acquisition cost and payback
Customer acquisition cost (CAC) is what it costs to win a customer; customer lifetime value (LTV) is the gross profit that customer brings in before leaving. Together they show whether growth creates value or burns it.
- CAC
- ₹20,000
- Customer lifetime value
- ₹80,000
- LTV:CAC
- 4.0:1
- CAC payback
- 12.5 months
The formulas
- CAC = sales and marketing spend ÷ new customers won in the same period.
- LTV = monthly revenue per customer × gross margin ÷ monthly churn rate.
- LTV:CAC = LTV ÷ CAC.
- CAC payback (months) = CAC ÷ (monthly revenue per customer × gross margin).
Worked example
A company spends ₹20 lakh on sales and marketing and wins 100 customers: CAC is ₹20,000. Each customer pays ₹2,000 a month at an 80% gross margin, and 2% of customers leave each month, so LTV = 2,000 × 0.8 ÷ 0.02 = ₹80,000. LTV:CAC is 4:1 and CAC is paid back in 20,000 ÷ 1,600 = 12.5 months.
Reading the result
A common benchmark for subscription businesses is LTV:CAC of at least 3:1 and payback within 12–18 months. A ratio below 1:1 means each new customer loses money. Count all acquisition costs, including salaries and tools, not only ad spend, and treat churn estimates from a few months of data with caution.
Common mistakes
- Using blended CAC, which mixes free organic customers with paid ones and makes paid channels look cheaper than they are. Work out CAC per channel too.
- Counting only ad spend: sales salaries, agency fees and marketing tools are acquisition costs.
- Using revenue instead of gross profit, which can double LTV for a low-margin business.
- Trusting churn from the first few months: early customers often behave differently from later ones.
- Ignoring expansion revenue: upsells and price rises raise LTV, and net revenue retention above 100% changes the picture entirely.
Related reading: Unit economics and the LTV:CAC ratio, with a calculator and Revenue-based financing vs venture debt: which fits your startup.
Frequently asked questions
- What is a good LTV to CAC ratio?
- 3:1 or better is the usual rule of thumb. Much higher can mean you are under-investing in growth.
- Should LTV use revenue or profit?
- Gross profit. Revenue-based LTV overstates what a customer is worth.
- How do I reduce CAC?
- Improve conversion at each funnel step, focus spend on the best channels, grow referrals and organic search, and shorten sales cycles.
- What is the difference between CLV and LTV?
- None in practice: customer lifetime value (CLV) and lifetime value (LTV) are two names for the same measure.
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