LTV : CAC Ratio Calculator
See whether you are acquiring customers profitably or just buying revenue. Uses margin-based LTV, the number that actually matters.
Uses gross-margin (contribution) LTV, not revenue LTV, so the ratio reflects real profit.
How the LTV:CAC calculator works
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 = AOV x gross margin x purchases per year x customer lifespan. CAC = 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.
Frequently asked questions
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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Get my free auditEstimates for planning only. LTV depends on retention assumptions that vary by brand and category.