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LTV:CAC calculator

The ratio is the number you will quote and the softest one in the deck, because lifetime value assumes a customer lifetime nobody has lived through yet. This works out how long that assumption is, and how it compares to how long you have existed.

Your numbers

What one customer pays you in a month, on average.
What is left after the cost of serving them. Left empty, this counts revenue as value.
The share of customers who leave in a month.
All of it: ad spend, plus the salaries of the people doing the acquiring.
What the assumed lifetime gets measured against.

What this assumes

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Add revenue, margin and churn

What gets asked about this number

Almost every question about unit economics is the same question underneath: how do you know? The ratio is built from two estimates and a forecast. These four come up whatever the figures; fill the calculator in and the ones drawn from yours join them, marked.

  1. What is inside CAC: only the ad spend, or the salaries of the people doing the acquiring?

    Fully loaded CAC includes sales and marketing headcount, tooling and commissions. Ad-spend-only CAC is a smaller and more flattering number, and the difference between the two is usually where a disagreement about this slide actually lives.

  2. Is this blended across channels, or is it one channel?

    A blended figure averages the channel that works with the one that does not, and the average is not what you would scale. The follow-up is always the worst channel rather than the mean.

  3. Does the LTV include expansion revenue, and has any of it happened yet?

    Net revenue retention above a hundred percent makes LTV much larger and is a genuine strength when it is observed. Included as a projection it quietly doubles the number nobody has checked.

  4. What does this look like for your oldest cohort rather than for the average?

    The average mixes customers acquired last month, who have had no chance to leave, with those who have. Older cohorts are the only ones carrying real information about lifetime.

The three things these calculators get wrong

Revenue is not value

A customer paying 100 a month at 70% gross margin is worth 70 a month to you, not 100. Lifetime value is built from gross profit, and a calculator that skips the margin is computing revenue and calling it value, the same shape of error as quoting gross burn where net burn was meant, and just as common. It also inflates the ratio by exactly the amount the margin was going to cost you.

The ratio is a profitability statement. Payback is the cash one.

Four to one says a customer eventually returns four times what they cost. It says nothing about when. A business can have an excellent ratio and a fatal payback period, because every new customer is a hole in the bank balance until they have paid for themselves. Past about a year, growth has to be funded by something, and the faster you grow, the bigger the hole.

Monthly churn compounds

Three percent a month is about 31% a year, not 36% and certainly not 3%. Quoting one number and meaning the other is the most common way an LTV:CAC ratio ends up wrong by an order of magnitude rather than a few percent. This page asks for monthly and shows you the annual figure as you type, so the two can never be confused.

And the assumption underneath all of it

Lifetime value is one over churn, multiplied by what a customer contributes. That one over churn is an assumed duration: 3% monthly churn assumes the average customer stays 33 months. If the company is eighteen months old, no customer has yet had the chance to prove or disprove it: the number is a projection about behaviour nobody has observed.

That does not make it wrong, and it is the standard way the figure is calculated. It does make it a claim rather than a measurement, and the version that survives scrutiny is the one where you say so before anybody else does.

What this does not do

No expansion revenue, no cohort analysis, no channel split. Each would make the figure more accurate and each needs data a free page cannot ask for. Net revenue retention above a hundred percent in particular makes LTV substantially larger, and is worth modelling properly rather than approximating here.

Terms on this page

LTV
Lifetime value. Gross profit per customer per month, multiplied by how many months they stay.
CAC
Customer acquisition cost. Fully loaded: ad spend plus the salaries of the people doing the acquiring.
Payback period
Months until a customer's gross profit has repaid what it cost to acquire them.
Gross margin
What is left of a sale after the direct cost of serving it. The multiplier on everything here.
Churn
The share of customers lost in a period. One divided by monthly churn is the average lifetime in months.

A number is only as good as your answer about it.

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