LTV and payback calculator
Lifetime value is gross margin per customer per month multiplied by average lifetime. The LTV:CAC ratio compares that to what a customer costs to acquire, and payback period is the months of margin needed to recover the acquisition cost.
LTV and payback, step by step
Use gross margin, not revenue. A customer paying 100 a month who costs 40 a month to serve is worth 60 a month to you, and an LTV built on the 100 overstates what you can afford to spend acquiring them by two-thirds. This single substitution is the commonest error in the calculation.
The ratio has a rule of thumb — 3:1 is healthy, below 1:1 means you lose money on every customer — but payback period is the number that governs whether you survive. A 5:1 ratio with a 30-month payback will still run you out of cash, because the cash leaves now and comes back over nearly three years.
Where this number misleads you
LTV computed from 1 ÷ churn assumes a constant churn rate and projects revenue years into the future, so it is a forecast dressed as a measurement. Early-stage companies routinely overstate it tenfold by using their best cohort and ignoring that churn is front-loaded. Payback period uses only money already spent and received, which is why investors increasingly ask for it instead.
Questions people ask
What is a good LTV:CAC ratio?
3:1 is the usual benchmark. Much below that and growth is unprofitable; much above it often means you are underinvesting in acquisition and leaving growth on the table. Always report it alongside payback period, which constrains cash in a way the ratio does not.
Should LTV use revenue or gross margin?
Gross margin. Subtract the cost of serving the customer — hosting, support, payment fees, third-party licences — before multiplying by lifetime. Using revenue inflates LTV by whatever your cost of service is and leads directly to overspending on acquisition.
How do I calculate CAC payback period?
Divide customer acquisition cost by gross margin per customer per month. The result is the number of months before that customer has repaid what you spent to win them. Under 12 months is strong for SMB products; over 24 months needs a financing plan to match.