Quick answer
A customer who orders $70 three times a year for three years at a 60% margin is worth $378 of profit. Against a $45 acquisition cost, the LTV to CAC ratio is 8.4 to 1, and the acquisition cost is paid back in 4.3 months. A ratio above 5 usually means the business is underspending on growth.
How the LTV to CAC Ratio works, step by step
Enter the average order value, how many orders a customer places per year, how many years they stay, your gross margin, and your cost to acquire one customer. The calculator multiplies the first four into a lifetime value, then divides by the acquisition cost. Every input is an average, so the result describes a typical customer, not any single one.
Lifetime value here is profit, not revenue. A customer who spends $630 over three years at a 60% margin is worth $378, because the other $252 is product and fulfilment cost. Using revenue instead of profit would overstate the ratio by two-thirds, which is the most common LTV mistake and the one this calculator is built to prevent.
The ratio bands are the verdict. Below 1 to 1 the business loses money on every customer. From 1 to 3 it is fragile: profitable on paper, but one bad month of churn or ad prices can wipe out the margin. From 3 to 5 is healthy, the range most sustainable businesses sit in. Above 5, the business is probably underspending on growth and leaving customers unacquired.
Payback period is the cash-flow half of the answer. A $45 acquisition cost against $10.50 of monthly profit per customer takes 4.3 months to recover. A great ratio with a two-year payback can still sink a business that runs out of cash first, so check both numbers before raising ad spend. Short payback with a weak ratio is the opposite problem: fast cash, thin lifetime profit.
The weakest input is usually lifespan, because few businesses have three years of clean retention data. If you are guessing, run the calculation twice: once with your optimistic lifespan and once with half of it. If the ratio stays above 3 on the pessimistic run, the acquisition model is robust; if it falls below 1, the business depends on a guess.
The formula
Revenue LTV = average order value times orders per year times customer lifespan in years. Profit LTV = revenue LTV times gross margin. LTV to CAC ratio = profit LTV divided by CAC. Monthly profit per customer = average order value times orders per year times margin, divided by 12. Payback months = CAC divided by monthly profit per customer.
Worked example — try it on the calculator above
Worked example: $70 orders, 3 a year, 3-year lifespan
A customer orders $70 three times a year for three years, spending $630 in total. At a 60% gross margin the profit lifetime value is $378. Acquisition costs $45, so the LTV to CAC ratio is 8.4 to 1, above the healthy 3 to 5 band, and the verdict is possibly underspending: the business could afford to pay more for customers and still profit. Monthly profit per customer is $10.50, so the $45 acquisition cost is paid back in 4.3 months. Halving the lifespan to 1.5 years would still leave a 4.2 to 1 ratio. That resilience is the point of the stress test: the model holds even if customers leave twice as fast as expected.
Frequently Asked Questions
What is a good LTV to CAC ratio?
The widely cited healthy range is 3 to 1 or better: each customer returns at least three times what they cost to acquire, measured on profit, not revenue. Below 1 to 1 the business loses money per customer. Above 5 to 1 usually means underspending on growth rather than excellence.
Should LTV use revenue or profit?
Profit. A customer who spends $630 at a 60% margin is worth $378, because $252 is product and fulfilment cost. Using revenue overstates the ratio by two-thirds and can make a losing acquisition model look healthy. This calculator always uses profit LTV.
How do I estimate customer lifespan?
From retention data if you have it: one divided by your annual churn rate is a rough lifespan. Without data, use your best estimate and stress-test it by halving it. If the ratio stays above 3 on the halved lifespan, the model is robust; if it falls below 1, it depends on a guess.
What if my payback period is longer than a year?
Then growth consumes cash for a long time before it returns it, even if the ratio looks good. Shorten payback by raising first-order value, improving margin or lowering CAC. A ratio of 8 to 1 with a two-year payback can still bankrupt a business that runs out of cash first.
Estimates, not advice. This calculator provides educational estimates based on the inputs you enter and the assumptions shown on this page. It is not financial, tax or investment advice, and it cannot see your full situation. Verify important figures against official sources, and consider a qualified professional for decisions about your own money. See our Disclaimer and Methodology.