How to use the LTV to CAC calculator
Enter average order value and how many times a typical customer buys per year.
Enter how many years a customer typically keeps buying.
Add gross margin so lifetime value is measured in profit, not revenue.
Enter your customer acquisition cost to see the ratio and how many months it takes to earn it back.
The LTV to CAC formula
- Revenue LTV=AOV × purchases per year × lifespan in years
- Gross profit LTV=revenue LTV × gross margin
- LTV:CAC=gross profit LTV ÷ CAC
- Payback in months=CAC ÷ (AOV × purchases per year ÷ 12 × gross margin)
- Purchases per year
- Average orders per customer per year. Use cohort data where you have it.
- Lifespan
- How long customers keep buying. With a short history this is a guess, so be conservative.
- CAC
- Acquisition spend divided by new customers acquired in the same period.
This is a simple, undiscounted model. It assumes even spending across the customer's life and ignores the time value of money.
Worked example
A consumables brand
- AOV 55, 2.4 purchases a year, 2.5-year lifespan.
- Revenue LTV = 55 × 2.4 × 2.5 = 330.
- Gross margin 60%, so gross profit LTV = 198.
- CAC 45, so LTV:CAC = 198 ÷ 45 = 4.4.
- Monthly gross profit per customer = 55 × 2.4 ÷ 12 × 0.6 = 6.60, so payback = 45 ÷ 6.60 = 6.8 months.
What a healthy ratio looks like
A ratio of about 3:1 is a widely quoted rule of thumb that comes from subscription software. Below 1:1 you lose money on every customer. Far above 5:1 can mean you are under-investing in growth and leaving customers to competitors.
For ecommerce, the payback period often matters as much as the ratio. A 4:1 ratio that takes three years to pay back can strain cash flow, so many brands aim to recover acquisition cost on the first order or within a few months.
| LTV:CAC | What it usually means |
|---|---|
| Below 1:1 | Each new customer loses money |
| 1:1 to 3:1 | Workable if payback is quick, with little room for error |
| Around 3:1 | The commonly cited target |
| Above 5:1 | Room to spend more on growth |
Getting LTV right
LTV is the easiest number to flatter. Projecting a five-year lifespan for a brand that is 18 months old is guesswork. Measure what real cohorts have spent after 30, 90, 180 and 365 days and build from there.
- Use gross profit, not revenue.
- Measure LTV for customers from the channel you are evaluating if repeat behaviour differs by channel.
- Exclude refunds and cancelled subscriptions.
- Recalculate every quarter, since retention shifts with product and price changes.
Using LTV to set ad targets
If you trust your 90-day or 180-day value, you can set a target CPA above first-order break-even and accept a small loss on the first purchase to win more customers. Do it with cash in mind: the profit arrives later, while the ad spend leaves now.
Questions and answers
What is LTV:CAC?+
The ratio of a customer's lifetime value, ideally measured in gross profit, to the cost of acquiring that customer. It shows how much value each unit of acquisition spend creates.
What is a good LTV to CAC ratio?+
Around 3:1 is the commonly cited benchmark, and below 1:1 is unsustainable. For ecommerce, also check that payback is short enough for your cash flow.
How do I calculate customer lifetime value?+
Multiply average order value by purchases per year and by expected lifespan in years, then multiply by gross margin to express it as profit.
How do I calculate CAC?+
Divide acquisition spend by the number of new customers in the same period. Include agency fees and other acquisition costs if you want a fully loaded figure.
What is the CAC payback period?+
The number of months of gross profit from a customer needed to recover what you paid to acquire them.
Should I use revenue or profit for LTV?+
Profit. Revenue-based LTV overstates value because it ignores the cost of delivering the products. A revenue LTV of 300 at a 40% margin is only 120 in gross profit.