Unit economics determine whether growth creates or destroys value. Enter revenue per customer, gross margin, churn and acquisition spend to calculate lifetime value, acquisition cost, the LTV:CAC ratio and CAC payback.
How it works
Assess unit economics: customer lifetime value, customer acquisition cost, the LTV-to-CAC ratio and months to recover acquisition spend.
LTV = (ARPA × Gross margin) ÷ Monthly churn
CAC = Sales & marketing spend ÷ New customers
CAC payback (months) = CAC ÷ (ARPA × Gross margin)Common uses
- Subscription and SaaS business models
- Marketing channel efficiency
- Investor and board reporting
Worked example
The calculator above opens with this example. Change any input to see the results update instantly, or select Reset to return to these figures.
| Average revenue per customer / month | $180 |
| Gross margin | 78% |
| Monthly churn rate | 2.5% |
| Sales & marketing spend (period) | $420,000 |
| New customers acquired (period) | 650 |
| LTV : CAC | 8.69× |
| Customer lifetime value | $5,616 |
| Customer acquisition cost | $646 |
| CAC payback | 4.6 months |
| Average customer lifetime | 40 months |
| Gross profit per customer / month | $140.40 |
Healthy unit economics: LTV is at least 3× acquisition cost.
Interpreting the results
- A 3:1 LTV:CAC and a payback under 12 months are widely used benchmarks for subscription businesses.
- Use gross-margin LTV, not revenue LTV, so the comparison with CAC is like-for-like.
- Small changes in churn have a large effect on LTV — validate churn over several cohorts.
Frequently asked questions
What is a good LTV to CAC ratio?
A ratio of 3:1 or higher is a widely used benchmark for healthy unit economics. Ratios well above 5:1 can indicate underinvestment in growth, while ratios below 1:1 mean each new customer loses money.
Why is LTV calculated on gross margin rather than revenue?
Revenue overstates value because serving customers has a direct cost. Gross-margin LTV measures the profit a customer actually contributes toward acquisition and fixed costs.
What is CAC payback?
CAC payback is the number of months of gross profit needed to recover the cost of acquiring a customer. Shorter payback reduces cash needs; under 12 months is commonly viewed as strong for subscription businesses.
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