The LTV:CAC ratio calculator.
See whether you are acquiring customers profitably or just buying revenue. It uses margin-based LTV, the number that actually matters.
Run the numbers ↗Uses gross-margin (contribution) LTV, not revenue LTV, so the ratio reflects real profit.
Profit, not vanity revenue.
LTV:CAC compares what a customer is worth to what it costs to acquire them. We use margin-based LTV so the ratio reflects profit, not vanity revenue.
The formula
LTV equals AOV times gross margin times purchases per year times customer lifespan. CAC is total marketing spend divided by new customers. The ratio is LTV divided by CAC. CAC payback is how many months of margin it takes to earn back the acquisition cost.
What the benchmark means
3:1 is the classic healthy minimum. Below 1:1 you lose money on every customer. Above 5:1 usually means you are under-investing in growth and leaving market share on the table. CAC payback under 6 months is ideal, under 12 is acceptable for most DTC.
What is a good LTV to CAC ratio?
Around 3:1 is the widely cited healthy target. The realistic band for ecommerce is roughly 2.5:1 to 4:1 on margin-based LTV. Under 1:1 means you lose money per customer.
Why is a very high LTV:CAC (5:1 or more) a problem?
It usually means you are spending too little on acquisition and growing slower than you could. A very high ratio is often a signal to invest more aggressively, not a trophy.
Should I use revenue or margin for LTV?
Margin. Revenue-based LTV overstates value because it ignores your cost of goods. This tool uses gross-margin LTV so the ratio reflects real contribution.
What is CAC payback period?
The number of months of per-customer gross margin it takes to recover the cost of acquiring them. Under 6 months is excellent, over 18 months strains cash flow.
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