AltF IdeaLab

LTV:CAC calculator

The LTV:CAC calculator works out customer lifetime value, the LTV to CAC ratio and how many months it takes to earn back the cost of acquiring a customer. It uses four inputs: monthly price, gross margin, monthly churn and CAC. It uses a simple constant-churn model, so treat early results as estimates.

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Idea (1)

Name and one-line pitch

Unit economics and market size

Plain arithmetic on your own numbers. Use ranges you can defend, and replace guesses with real figures as experiments come back.

Currency symbol

Unit economics: LTV, CAC and payback

Price per customer / month

Gross margin

Monthly churn

Cost to acquire one customer

Lifetime value

$320

≈ 20 months average lifetime

LTV : CAC

3.2 : 1

3:1 or better is a common healthy target

CAC payback

6.3 mo

Months of gross profit to earn back acquisition cost

Gross profit / month

$16

Per customer

Market size, bottom-up: TAM, SAM, SOM

All possible buying customers

Price per customer / year

Share you can serve (SAM)

Share you can win (SOM)

TAM

$2,400,000

Every possible buyer × annual price

SAM

$720,000

The part your product and channels can serve

SOM

$36,000

≈ 150 customers you could realistically win

Revenue goal / year

You need 417 paying customers, which is 278% of your SOM estimate.

Autosaved in this browser only. Nothing is sent to AltFTool.

How to use the ltv:cac calculator

1
Enter the monthly price
Use the average monthly revenue from one customer.
2
Add gross margin and churn
Enter gross margin as a percentage and the share of customers who cancel each month.
3
Add CAC
Enter the average cost to acquire one paying customer, including ad spend and sales time.
4
Read the verdict
Check LTV, the ratio and payback months, then test what changes if churn or CAC moves.

How it works

Monthly gross profit = price x gross margin.
Customer lifetime in months = 1 / monthly churn, so LTV = price x margin / churn.
LTV:CAC = LTV / CAC. Payback months = CAC / (price x margin).
Verdict: a ratio of 3 or more is healthy, 1 to under 3 is thin, and below 1 means each customer loses money.
With zero churn or zero CAC the ratio cannot be calculated and the result is shown as incomplete.

Worked example: two subscription plans

Plan A: $49 a month at 80% margin is $39.20 gross profit a month. At 4% monthly churn the average customer stays 25 months, so LTV is $980.

With a $300 CAC, LTV:CAC is 3.3 (healthy) and payback is $300 / $39.20 = 7.7 months.

Plan B: $20 a month at 70% margin is $14 a month. At 8% churn customers stay 12.5 months, so LTV is $175.

With a $250 CAC, LTV:CAC is 0.7 (losing money on each customer) and payback is 17.9 months, longer than the average customer stays.

What the ltv:cac calculator does not do

Assumes constant monthly churn and a flat price; expansion revenue, discounts and annual plans are not modelled.
Before launch, churn and CAC are guesses, so run the numbers at a pessimistic and an optimistic value.
Does not discount future revenue to present value.