LTV:CAC Ratio Calculator
A healthy-looking 5:1 LTV:CAC ratio means very different things depending on whether that lifetime value plays out over six months or four years. This calculator pairs the ratio with a payback-period estimate so the two numbers are never read in isolation.
LTV:CAC = Customer Lifetime Value ÷ Customer Acquisition Cost
5.0:1
3:1 or higher is a commonly cited healthy benchmark.
5.0 months
Time for cumulative margin to cover CAC — read this alongside the ratio, not instead of it.
What each field wants
- Customer lifetime value
- The total contribution margin — not revenue — you expect from a customer over their relationship with you. Revenue LTV inflates the ratio by exactly one over your margin, which is how a 3:1 business convinces itself it is a 6:1 business.
- Customer acquisition cost
- Blended CAC from your own books, ideally. Channel-reported CAC is systematically low and will flatter this ratio by 20–50%.
- Avg. monthly revenue per customer
- Revenue, not margin — the margin percentage is the next field, and the tool multiplies the two to get monthly contribution. For a subscription this is the plan price; for repeat-purchase e-commerce it is annual revenue per customer divided by twelve.
- Gross margin (%)
- Applied to the monthly revenue figure to derive the monthly contribution used for payback. It does not affect the LTV:CAC ratio, which uses the lifetime value you entered directly — so if you entered a revenue LTV above, the ratio is still inflated and this field will not correct it.
How this number is derived
The ratio measures worth; payback measures affordability
LTV:CAC asks whether a customer is worth more than they cost — a question about the business model. Payback period asks how long your cash is tied up before it comes back — a question about your bank balance. A 6:1 ratio with a 30-month payback describes a good business that cannot self-fund its own growth.
Payback = CAC ÷ monthly contribution
If a customer costs ₹2,400 to acquire and contributes ₹200 of margin a month, you get your money back in month 12. Everything after that is profit; everything before it is working capital you have to have. The number that determines how fast you can grow without outside funding is this one, not the ratio.
LTV must be discounted, or at least bounded
A ₹20,000 LTV realised over five years is not worth ₹20,000 today — money has a cost, and a five-year retention curve is a forecast, not a measurement. The practical fix most teams use is to cap LTV at 12 or 24 months of observed contribution. A 24-month bounded LTV is defensible; an "infinite horizon" LTV derived from a churn assumption is a story.
Where the 3:1 rule of thumb comes from, and its limits
The 3:1 heuristic originates in SaaS, where gross margins run 75–85% and revenue is contractual. Applied to a 35%-margin e-commerce business with no contract and a two-order median lifetime, it is not a benchmark — it is a coincidence of arithmetic. Derive your own threshold from payback and your cash position.
Same ratio, opposite decisions
- Business A
- LTV ₹18,000, CAC ₹3,000, contributes ₹1,500/month
- Business B
- LTV ₹18,000, CAC ₹3,000, contributes ₹250/month
Business A LTV:CAC = 18,000 ÷ 3,000 = 6.0:1
Business A payback = 3,000 ÷ 1,500 = 2 months
Business B LTV:CAC = 18,000 ÷ 3,000 = 6.0:1
Business B payback = 3,000 ÷ 250 = 12 monthsIdentical ratios. Business A recycles its acquisition budget six times a year and can compound growth from cash flow. Business B ties up a year of capital per customer and needs financing to scale at the same rate. The ratio said they were the same business; payback says one of them has a funding problem.
Payback period, read against how you are funded
The binding constraint is usually payback, not the ratio. These bands assume you are growing from operating cash.
| Under 3 months | Self-funding | Acquisition budget recycles 4+ times a year. You can scale as fast as demand allows. |
|---|---|---|
| 3 – 6 months | Comfortable | The common healthy band for repeat-purchase e-commerce. |
| 6 – 12 months | Needs working capital | Viable, but growth rate is capped by your cash, not your ROAS. |
| Over 12 months | Requires financing | Standard in enterprise SaaS with contracted revenue; a warning sign almost anywhere else. |
What this assumes, and what it doesn't model
Assumptions
- LTV is expressed in contribution margin, over a bounded horizon you have chosen deliberately.
- Monthly contribution is an average across the cohort, and roughly stable over the payback window.
- CAC and LTV are measured on the same customer definition — the cohort you acquired, not the cohort you retained.
Deliberately not modelled
- No discounting of future cash flows. On horizons beyond about two years this materially overstates LTV.
- Assumes a flat contribution curve. Real cohorts front-load: the first 90 days usually contribute far more per month than month 18, which makes the true payback faster than a flat model suggests and the tail thinner.
- Averages hide cohort divergence. A blended 5:1 can be one channel at 12:1 and another at 1.5:1 — segment before you act.
- Does not model churn explicitly. If your retention curve is steepening, a backward-looking LTV overstates what new cohorts will do.
Common questions
Should LTV use revenue or margin?
Margin — specifically contribution margin. Using revenue inflates the ratio by one over your margin: a business with 40% margins and a genuine 2.4:1 will report 6:1 on revenue LTV. Almost every implausibly healthy LTV:CAC you see in a deck is a revenue LTV over a channel-reported CAC.
What time horizon should LTV cover?
Whatever you can actually observe, capped at 24 months for most consumer businesses. If your oldest cohort is 14 months old, you do not have a 3-year LTV — you have a 14-month measurement and a model. Report the bounded figure and note the horizon next to it.
My LTV:CAC is 10:1. Is that good?
Probably it means you are underspending. A very high ratio on a business that is not growing quickly usually indicates you are only buying the cheapest, highest-intent demand and leaving the rest unbought. Try increasing spend until the ratio settles into your target band — the incremental customers are worth having even at a worse ratio, provided payback stays inside what your cash allows.
How does this interact with breakeven ROAS?
Breakeven ROAS is the single-order version of the same question; LTV:CAC is the lifetime version. A business with real repeat purchase can rationally run below breakeven ROAS on the first order, because the second and third orders pay for the acquisition. The condition for that being sensible is a payback period your cash can absorb.
Last reviewed August 28, 2026.