What is a good LTV:CAC ratio?
Growth is only good if each customer is worth more than they cost to win. LTV:CAC is the one number that tells you whether your acquisition is building a business or just burning cash.
Skip the math — the free ltv cac calculator runs this from your own figures.
Open the free calculator →The two numbers
LTV — lifetime value — is the gross profit you expect from a customer over the whole time they stay with you. CAC — customer acquisition cost — is what you spend on sales and marketing to win one customer.
LTV:CAC simply divides one by the other. A 3:1 ratio means each customer is worth three times what they cost to acquire.
How to calculate LTV
A clean way to estimate LTV: take your average revenue per customer per month, multiply by your gross margin, and multiply by the average number of months a customer stays.
That last figure comes from churn — if 4% of customers leave each month, the average lifetime is roughly 1 ÷ 0.04 = 25 months. Using gross-margin revenue (not headline revenue) keeps the number honest, because you only keep the margin, not the whole invoice.
What ratio is actually healthy
A widely used benchmark is 3:1 or better. Below about 1:1 you lose money on every customer. Between 1:1 and 3:1 you're growing but thin. Far above 3:1 — say 5:1 or more — can even signal you're underspending on growth and leaving demand on the table.
There's no magic number that fits every business, but 3:1 is a reasonable line in the sand for a healthy, sustainable model.
Don't ignore CAC payback
The ratio ignores time. A great LTV:CAC that takes three years to pay back can still starve you of cash today. That's why CAC payback — how many months of gross-margin revenue it takes to recover the acquisition cost — matters alongside it.
Under ~12 months payback is generally comfortable for a small, self-funded business. The free calculator below returns both your ratio and your payback in one go.
Questions
Should LTV use revenue or gross profit?
Gross profit. You don't keep the full price a customer pays — you keep the margin after the cost of delivering the service — so an LTV built on gross margin reflects real value.
My churn is high. What does that do to LTV?
It shortens customer lifetime and lowers LTV directly. Because lifetime is roughly 1 ÷ churn, cutting churn is often the highest-leverage way to improve your unit economics.