LTV:CAC Ratio: The One Number That Reveals a Sustainable Business
If you could track only one metric to judge whether a subscription business will work, it would be the LTV:CAC ratio. It compares everything a customer is worth over their lifetime against what it cost to win them. This calculator builds that ratio honestly — from churn-based lifetime and margin-adjusted value — so the number you see is the number investors will trust.
How It Works: The Formulas
- Average lifetime (months) = 1 / Monthly churn rate
- LTV = Monthly revenue per account × Gross margin % × Average lifetime
- LTV:CAC ratio = LTV / Customer Acquisition Cost
The margin term is what separates a real ratio from a vanity one. A customer paying $100 a month at 80% gross margin is only worth $80 a month in actual profit — and that is the figure that should drive every acquisition decision.
A Worked Example
A customer pays $100 per month, your gross margin is 80%, and monthly churn is 2%. The average customer stays 1 / 0.02 = 50 months. Their LTV is $100 × 0.80 × 50 = $4,000. If it costs $1,000 to acquire them, your ratio is $4,000 / $1,000 = 4:1 — squarely in the healthy zone investors want to see. Now imagine churn doubles to 4%: lifetime halves to 25 months, LTV drops to $2,000, and the ratio falls to 2:1. Retention, not acquisition, is often where the ratio is won or lost.
Reading Your Ratio
- Below 1:1 — you lose money on every customer. The model is broken until something fundamental changes.
- 1:1 to 3:1 — below benchmark. Acquisition is too costly or customers leave too soon to recover the spend with margin to spare.
- 3:1 to 5:1 — the sweet spot. Each acquisition dollar returns three to five in gross profit, leaving room for overhead and reinvestment.
- Above 5:1 — often a signal you are under-spending on growth. You could likely afford to acquire customers faster.
How to Improve the Ratio
There are only three levers, and pulling each one moves the ratio in a predictable way. Raise LTV by reducing churn, increasing prices, or expanding accounts through upsells. Lower CAC by sharpening targeting, leaning on referrals, and cutting weak channels. Protect margin by reducing the cost to serve. Because lifetime is the inverse of churn, retention improvements compound hardest — cutting monthly churn from 4% to 2% does not just help, it doubles the lifetime that feeds your LTV.
Pair this calculator with the CAC payback period tool. Together they answer the two questions that decide a subscription company's fate: is each customer worth more than they cost, and how long until you get your money back?