What is a good LTV to CAC ratio?

Many subscription businesses aim for around 3 or higher, but the right target depends on your margins, cash and growth stage. Treat it as a rule of thumb, not a law.

What if churn is zero?

The simple formula divides by churn, so the result is unbounded. Use a realistic churn estimate, or cap lifetime at a number of years.

Average revenue per account: total MRR divided by the number of paying accounts.

Free tool

Customer lifetime value (LTV) calculator

Customer lifetime value, LTV to CAC ratio and CAC payback in months.

ARPA per month (Rs)

Average revenue per account

Gross margin

Monthly churn

CAC (Rs)

Cost to acquire one customer

Lifetime value

₹40,000

Customer lifetime

25.0 months

LTV to CAC

3.3 : 1

CAC payback

7.5 months

What it calculates

Customer lifetime value estimates the gross profit a typical customer brings before they leave. Compare it with what it costs to acquire them (CAC) to see whether growth is paying for itself.

The formula

Monthly gross profit = ARPA x gross margin
LTV = monthly gross profit / monthly churn rate
Lifetime in months = 1 / monthly churn rate
LTV to CAC = LTV / CAC
CAC payback in months = CAC / monthly gross profit

Worked example

ARPA Rs 2,000, 80 percent margin, 4 percent churn, CAC Rs 12,000

Monthly gross profit = 2,000 x 0.80 = Rs 1,600
LTV = 1,600 / 0.04 = Rs 40,000
Lifetime = 1 / 0.04 = 25 months
LTV to CAC = 40,000 / 12,000 = 3.3
Payback = 12,000 / 1,600 = 7.5 months

Questions

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