What is the LTV to CAC ratio?
The LTV to CAC ratio compares what a customer is worth over their lifetime with what it cost to win them.
4:1 means every dollar spent acquiring a customer comes back as four dollars of gross profit.
It is the one ratio that answers the only question that matters about growth. Is each new customer making you money, or costing you money?
How to calculate LTV, LTV:CAC and CAC payback
LTV is LTV = ARPA × gross margin / monthly churn, where ARPA is average monthly revenue per account.
- Customer lifetime = 1 / monthly churn
- LTV:CAC = LTV / CAC
- CAC payback = CAC / (ARPA × gross margin)
Worked example, using the sample numbers in the calculator:
| Step | Math | Result |
|---|---|---|
| Monthly gross profit | $1,000 × 75% | $750 |
| Lifetime | 1 / 3% | 33.3 months |
| LTV | $750 / 3% | $25,000 |
| LTV:CAC | $25,000 / $6,000 | 4.2:1 |
| CAC payback | $6,000 / $750 | 8 months |
Why gross margin and not revenue? Because revenue is not what you keep. A ratio built on revenue flatters every business with real delivery costs.
What is a good LTV to CAC ratio?
A good LTV to CAC ratio is 3:1 or better. That is the classic rule of thumb, and it is a floor, not a finish line.
| Ratio | What it usually means |
|---|---|
| Below 1:1 | Every new customer loses money |
| 1:1 to 3:1 | Growth works, but it is expensive |
| 3:1 to 5:1 | Healthy |
| Above 5:1 | Room to spend more and grow faster |
For a real-world check, the Aleph and Benchmarkit 2026 SaaS benchmarks put the median CLTV:CAC at 4.1x for full-year 2025, with the top quartile at 7.8x and the bottom quartile at 1.1x, across 146 companies that reported it (getaleph.com).
CAC payback period: the ratio's impatient cousin
CAC payback is how many months of gross profit it takes to earn back what a customer cost to win.
The ratio tells you if a customer is worth it. Payback tells you how long your cash is tied up waiting. A 5:1 ratio with a 30-month payback can still choke a business that has to fund growth from revenue.
The same Aleph and Benchmarkit page puts payback at about 18 months for vertical SaaS and about 14 months for horizontal SaaS.
How to move the ratio in the right direction
You improve LTV:CAC by cutting churn, raising margin or lowering CAC. The fastest of the three is usually CAC.
- Lower cost per held call. A 7-question quiz funnel of about 30 seconds, with the calendar INSIDE it, books calls while intent is hot.
- Qualify before the call. Better-fit customers churn less, which lifts LTV too.
- Follow up by email and SMS. Fewer no-shows means fewer wasted sales hours in your CAC.
It is the same system clients used to scale from $10K to $100K+ MRR.
Work out your CAC first with the CAC calculator, check the ad side with the ROAS calculator and cost per lead calculator, then read the cost per held call guide and how we run SaaS lead generation.
Questions
How do you calculate LTV to CAC ratio?
First find LTV = monthly revenue per account × gross margin / monthly churn. Then divide LTV by CAC. At $1,000 a month, 75% margin and 3% churn, LTV is $25,000. With a $6,000 CAC, LTV:CAC is about 4.2:1.
What is a good LTV to CAC ratio?
3:1 is the classic floor. The Aleph and Benchmarkit 2026 SaaS benchmarks put the median at 4.1x for full-year 2025, with the top quartile at 7.8x. Below 1:1, every new customer loses money.
How do you calculate CAC payback period?
CAC payback = CAC / (monthly revenue per account × gross margin). A $6,000 CAC with $1,000 a month at 75% margin earns back $750 a month, so payback is 8 months.
Should LTV use revenue or gross margin?
Gross margin. Revenue includes money you spend delivering the product, so a revenue-based LTV overstates what a customer is worth and makes LTV:CAC look healthier than it is.
What if my churn is very low?
Lifetime is 1 / monthly churn, so 0.5% churn means a 200-month lifetime, longer than most plans can see. Many teams cap LTV at a horizon they trust, such as 36 or 60 months, and lean on CAC payback for decisions.