CAC and LTV Calculator: Ratios & Payback Period

How to calculate CAC, LTV, and payback period

Customer Acquisition Cost (CAC) and Customer Lifetime Value (LTV) together measure the economic engine of a subscription or recurring-revenue business. This calculator determines how much you spend to acquire a customer, how much gross profit they generate over their lifecycle, and how many months it takes to recoup your acquisition investment.

All calculations execute entirely in your web browser. Your confidential marketing budgets and customer unit economics are never transmitted to external servers.

Core mathematical formulas

$$\text{Customer Acquisition Cost (CAC)} = \frac{\text{Sales & Marketing Spend}}{\text{New Customers Acquired}}$$

$$\text{Customer Lifetime Value (LTV)} = \frac{\text{ARPA} \times \text{Gross Margin %}}{\text{Monthly Churn Rate}}$$

$$\text{LTV to CAC Ratio} = \frac{\text{LTV}}{\text{CAC}}$$

$$\text{CAC Payback Period (Months)} = \frac{\text{CAC}}{\text{ARPA} \times \text{Gross Margin %}}$$

Key metric definitions:

• Sales & Marketing Spend: The fully loaded cost of acquiring customers over a defined period, including advertising ad spend, sales commissions, marketing tool subscriptions, and team compensation.
• New Customers Acquired: The total count of net-new paying accounts signed within the same period.
• ARPA (Average Revenue Per Account): The average monthly recurring revenue generated per active customer.
• Gross Margin Percentage: Revenue remaining after deducting direct hosting, customer support, and payment transaction costs (Cost of Goods Sold).
• Monthly Customer Churn Rate: The percentage of active subscribers who cancel or fail to renew each month.

Worked example: B2B subscription software

Consider a growth-stage SaaS company analyzing its quarterly acquisition economics:

• Quarterly Sales & Marketing Spend: $30,000
• New Paying Customers Acquired: 100 customers
• Average Monthly Revenue Per Account (ARPA): $50
• Software Gross Margin: 80% (direct server infrastructure and payment fees equal 20%)
• Monthly Customer Churn: 4.0%

Step-by-step arithmetic:

1. CAC: $$30,000 \div 100 = \mathbf{$300.00}$ per customer
2. Monthly Gross Profit Contribution: $$50.00 \times 0.80 = \mathbf{$40.00}$ per customer per month
3. Average Customer Lifetime: $1 \div 0.04 = \mathbf{25\text{ months}}$
4. LTV: $$40.00 \div 0.04 = 25 \times $40.00 = \mathbf{$1,000.00}$
5. LTV to CAC Ratio: $$1,000.00 \div $300.00 = \mathbf{3.33 : 1}$
6. CAC Payback Period: $$300.00 \div $40.00 = \mathbf{7.5\text{ months}}$

This business recovers its customer acquisition outlay in 7.5 months and captures over 3.3 times its acquisition spend in cumulative gross margin over the customer's lifespan.

Industry benchmarks for SaaS and subscription businesses

Common mistakes in unit economic analysis

1. Omitting Gross Margin from LTV: Multiplying ARPA directly by customer lifespan without subtracting COGS inflates your lifetime value, leading to unprofitable marketing spend.
2. Ignoring Blended vs. Paid CAC: Blended CAC mixes organic word-of-mouth users with paid traffic. To evaluate ad performance, track paid CAC independently.
3. Underestimating Early Churn: High first-month drop-offs distort simple churn averages. Use cohort analysis to model early drop-offs accurately.

Frequently asked questions

What is a good CAC payback period?

For self-serve SMB SaaS products, a payback period under 12 months is standard. For enterprise software with annual upfront contracts, payback periods between 12 and 18 months are considered healthy.

Why does gross margin matter in the LTV calculation?

Revenue pays for hosting, customer success, and payment gateways. Only the gross profit portion of revenue contributes to paying off acquisition costs and building net profit.

How does reducing churn impact LTV?

Because customer lifetime equals 1 ÷ Churn, cutting monthly churn in half from 4% to 2% doubles the expected customer lifespan from 25 months to 50 months, doubling your LTV without spending a penny more on marketing.