CAC, LTV and payback calculator
Three numbers decide whether paid growth is worth it: what a new customer costs, what that customer is worth in profit, and how long it takes to earn the cost back. Fill in your own figures to see all three.
Acquisition
Your customers
Result
LTV:CAC
4
- Payback period
- 6 months
The fields start with the example below. Replace them with your own numbers.
What CAC, LTV and payback mean
Customer acquisition cost (CAC) is everything you spent to win new customers in a period divided by the number of new customers you won. Count ads, agency fees, tools and creative production, not only the media budget.
Lifetime value (LTV) is the gross profit a customer brings over the whole time they stay with you. Use margin, not revenue: a customer who spends a lot on low-margin orders may be worth less than one who spends a little on high-margin ones.
Payback period is how many months of that customer's gross profit it takes to cover their CAC. It is the number that tells you how long your cash is tied up before growth starts paying for itself.
The formulas
CAC = acquisition spend ÷ new customers
LTV = average order value × gross margin × orders per year × years as a customer
LTV:CAC = LTV ÷ CAC
Payback (months) = CAC ÷ (average order value × gross margin × orders per year ÷ 12)
A worked example
Imagine a coffee subscription that spent $6,000 on ads, an agency and creative last month and won 150 new customers. CAC is 6,000 ÷ 150 = $40. The business and its numbers are invented for this example and match the calculator's starting values.
An average order is $25 with a 40% gross margin, so each order leaves $10 of gross profit. Customers order 8 times a year, which is $80 a year, and stay for about 2 years: LTV is $160. LTV:CAC is 160 ÷ 40 = 4.0, and payback is 40 ÷ (80 ÷ 12) = 6 months.
Now suppose the agency fee had been left out and CAC looked like $30. Every ratio would look better than it really is, and the team might scale a channel that only works on paper.
Mistakes that make the numbers lie
Revenue-based LTV. Using order value without margin can inflate LTV several times over and makes almost any CAC look affordable.
Blended CAC hiding paid CAC. Customers who arrive through search or word of mouth cost nothing to acquire, so dividing ad spend by all new customers makes paid channels look cheaper. Calculate CAC for paid customers separately when you can.
An optimistic lifetime. If the business is young, you do not know yet how long customers stay. Use what your cohorts actually show, not a hopeful guess, and redo the calculation as the data grows.
How to read the result
Many teams use an LTV:CAC of around 3 as a rough rule of thumb, but the ratio alone does not pay the bills. A small business with little cash may care more about payback: a 4.0 ratio that takes two years to pay back can still run it out of money. Look at both together, and compare channels with each other rather than with a universal target.