LTV to CAC calculator
Calculate customer lifetime value on gross profit rather than revenue, compare it against acquisition cost, and find your payback period and maximum affordable CAC.
Supplementary planning worksheet. This general retention model is outside our core shipping workflow; results depend on your own cohort assumptions.
On $468.00 of lifetime revenue
| Step | Working | Result |
|---|---|---|
| Lifetime orders | 2.4 × 3 | 7.2 |
| Lifetime revenue | 65 × 7.2 | $468.00 |
| Lifetime gross profit (LTV)Compare CAC against this, never against lifetime revenue. | 468 × 42% | $196.56 |
| LTV : CAC | 8.19 × |
Lifetime value on profit, never on revenue
The most expensive mistake in this calculation is using revenue. A customer who spends $300 with you over three years at a 20% gross margin is worth $60, not $300, and paying $80 to acquire them loses money on every single one — while a revenue-based LTV says the ratio is a healthy 3.75:1 and tells you to spend more. Comparing revenue LTV against acquisition cost is the standard way a business talks itself into unprofitable growth, and it survives because the resulting numbers look excellent right up until the cash runs out.
Build LTV on gross profit: average order value, times gross margin, times purchase frequency, times expected lifespan. Then compare it against fully loaded acquisition cost — the ad spend plus the agency fee plus the discount code plus whatever else it took, divided by customers acquired, not by orders.
The ratio is a diagnostic, not a target
3:1 is the widely used floor, and below it growth consumes cash faster than it produces it. But a ratio well above 5:1 is not a triumph; it usually means you are underinvesting in acquisition and could profitably grow faster by bidding higher. The more actionable number is payback period — how many months of gross profit it takes to recover the acquisition cost — because that is what determines how fast you can reinvest and therefore how fast you can grow without external funding.
Two caveats worth holding. Early-stage LTV is a forecast dressed as a measurement, since you have not observed the lifespan you are assuming. And a marketplace seller usually does not own the customer at all, which makes LTV a much weaker concept there than on your own store — the marketplace keeps the relationship, and repeat purchases may be attributed to the platform rather than to you.
Questions people ask about this
Answers written from the published rules, not from other people's summaries of them. Every figure quoted below is listed with its source at the foot of this page.
Every formula on this siteShould LTV use revenue or profit?
Gross profit. Comparing revenue LTV against CAC is the classic way to talk yourself into unprofitable growth — a customer worth $300 in revenue at 20% margin is worth $60 to you, and paying $80 to acquire them loses money on every sale.
What is a healthy LTV to CAC ratio?
3:1 is the widely used floor. Below that, growth consumes cash faster than it produces it. Well above 5:1 usually means you are underinvesting in acquisition and could profitably grow faster.
What counts as acquisition cost?
Everything spent to turn a stranger into a first-time customer, divided by the number of first-time customers — not by orders. That means ad spend, agency or freelancer fees, the cost of first-order discount codes, affiliate commissions and any tooling attributable to acquisition. Dividing by total orders instead of new customers is the second most common error here, and it understates CAC by exactly your repeat rate, which is precisely the figure you were trying to evaluate.
What is a reasonable payback period?
For a self-funded ecommerce business, shorter than your cash conversion cycle — which usually means the first order, or at most the first two or three months. Venture-funded subscription businesses routinely accept twelve months or more because they have the capital to bridge it. If you are financing inventory out of revenue, a long payback period does not just slow growth, it stops it: you cannot buy the next container until the last one has been paid back.
Does LTV:CAC apply to marketplace selling at all?
Weakly, and it is worth being honest about why. On Amazon, eBay or Etsy the platform owns the customer relationship, controls the repeat purchase and does not tell you who bought. You can measure ad cost per sale and margin per sale, which makes break-even ACOS the more useful tool there. LTV:CAC becomes genuinely meaningful when you own the customer — your own store, an email list, a subscription — because only then can you influence the lifetime half of the ratio.
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Where these numbers come from
This calculator uses arithmetic rather than published rates — every figure comes from the values you enter. See the methodology page for the formulas behind it.
Page updated . Spotted something out of date? Tell us — corrections are published with the date they were made.
More on the working: every formula on this site, the full source register, what the terms mean, and how we decide what to publish. What an estimate here can and cannot support is set out in the accuracy notes.