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LTV:CAC Ratio Calculator

The benchmark is 3:1 — where do you stand?

Enter your Customer Lifetime Value and Customer Acquisition Cost to see whether your unit economics are sustainable. This single ratio tells you more about the health of your business model than almost any other metric. If you are spending more to get a customer than that customer is worth, no amount of growth will save you.

Enter Your Numbers

The total net revenue you expect from a single customer over the entire relationship. If you do not know this, multiply average monthly revenue per customer by average customer lifespan in months.

The total cost to acquire one new customer. Include marketing spend, sales team costs, tools, and any other expenses involved in winning a customer, divided by the number of customers acquired in that period.

If provided, this calculates how many months it takes to recover the acquisition cost from each customer. Useful for understanding cash flow impact.

Where the 3:1 Rule Comes From

The 3:1 LTV:CAC ratio has become the standard benchmark for healthy unit economics, and it did not appear out of thin air. The rule emerged from venture capital analysis in the early 2000s, popularized by David Skok and other SaaS investors who studied hundreds of subscription businesses to determine what separated companies that scaled profitably from those that burned through capital.

The logic is straightforward. If a customer is worth $3 for every $1 you spend to acquire them, you have a 2x margin after recovering your acquisition cost. That margin absorbs the costs of servicing the customer, overhead, variability in both LTV and CAC, and still leaves profit. Below 3:1, those absorption layers get dangerously thin. Above 3:1, the model is robust enough to scale.

While the 3:1 rule originated in SaaS, it applies to virtually any business with recurring revenue or repeat customers. A landscaping company that spends $400 in marketing to win a customer worth $1,500 over their lifetime has a 3.75:1 ratio. A contractor who spends $2,000 on leads but earns $10,000 from a typical customer relationship is at 5:1. The math is universal.

Why Below 1:1 Is Unsustainable

A ratio below 1:1 means you spend more to acquire a customer than that customer will ever be worth. This is not a growth problem. It is a math problem. No amount of volume fixes it. In fact, volume makes it catastrophically worse.

If your CAC is $500 and your LTV is $300, every new customer costs you $200. Acquire 100 customers and you have lost $20,000. Acquire 1,000 and you have lost $200,000. The faster you grow, the faster you die. This is the classic “selling dollar bills for ninety cents” problem, and it has killed more businesses than most people realize.

The fix must come from one of two directions: increase LTV by raising prices, improving retention, or expanding revenue per customer, or decrease CAC by finding more efficient acquisition channels, improving conversion rates, or leveraging organic and referral growth.

Why Above 5:1 Means You Should Spend More

This is the part most business owners get wrong. A 7:1 or 10:1 ratio feels great, and it is a sign of a strong product-market fit. But it also means you are dramatically underinvesting in growth. You have proven that customers are worth far more than the cost to acquire them, and yet you are not acquiring more of them.

Consider two competing businesses. Company A has a 3:1 ratio and is investing aggressively, acquiring 500 customers per month. Company B has an 8:1 ratio but is only acquiring 50 customers per month because they are not spending on growth. In two years, Company A dominates the market while Company B's beautiful ratio is irrelevant because they have a fraction of the customer base.

The action items when your ratio is above 5:1 are clear: increase ad spend on your best-performing channels, test new acquisition channels you have been ignoring, hire salespeople, invest in content marketing, or launch referral programs. You can afford a higher CAC and still maintain healthy economics.

SaaS and Small Business Benchmarks

While 3:1 is the universal benchmark, ratios vary by industry and business model. Here are some reference points based on Harvard Business Review research and industry data:

  • SaaS companies: The 3:1 benchmark was designed for this model. Top-performing SaaS companies achieve 5:1 or higher. Below 3:1 typically signals either a pricing problem or an acquisition efficiency problem. CAC payback periods of 12 months or less are considered healthy.
  • Professional services: Accounting firms, consultants, and agencies often see ratios of 4:1 to 8:1 because their CAC is relatively low (referrals, networking) and customer relationships last for years.
  • E-commerce: Ratios tend to be lower, typically 1.5:1 to 3:1, because customer acquisition costs are high (paid ads) and repeat purchase rates vary. Subscription-based e-commerce (like monthly boxes) tends to be higher.
  • Home services and contractors: Highly variable. A roofer who spends $1,000 on leads for a $15,000 job has a strong ratio on the first job alone. But if the customer never returns, the LTV is that single job. Repeat service businesses (HVAC, landscaping, cleaning) tend to have much stronger ratios because of recurring revenue.
  • Retail: Traditional retail struggles with this metric because foot traffic is hard to attribute to specific acquisition costs. However, businesses that track it through loyalty programs and digital marketing typically see ratios between 2:1 and 4:1.

How to Improve Your LTV:CAC Ratio

There are only two levers: increase LTV or decrease CAC. Here are the most effective tactics for each, based on guidance from the U.S. Small Business Administration and SCORE:

To increase LTV:

  1. Reduce churn. The single most powerful lever. Improving retention from 90% to 95% monthly does not sound like much, but it nearly doubles average customer lifespan from 10 months to 20 months, effectively doubling LTV.
  2. Increase prices. Most small businesses underprice. A 10% price increase with no change in retention directly increases LTV by 10%. Test it. The customers you lose are often the least profitable anyway.
  3. Upsell and cross-sell. Expanding revenue per customer is often easier than acquiring new customers. Offer premium tiers, add-on services, annual plans, or complementary products.
  4. Improve onboarding. Customers who have a strong first experience stay longer. Invest in the first 30 days of the customer relationship to reduce early churn.

To decrease CAC:

  1. Double down on your best channel. Most businesses acquire customers from 5–10 channels but 80% of their customers come from 1–2. Identify your most efficient channel and reallocate spend from underperformers.
  2. Build referral systems. Referred customers have near-zero acquisition cost and typically have higher LTV than non-referred customers. A structured referral program is one of the most powerful CAC reduction tools available.
  3. Improve conversion rates. If your website converts at 2% and you improve it to 4%, your CAC is cut in half without spending an additional dollar on marketing.
  4. Invest in content and SEO. Organic acquisition has a high upfront cost but decreasing marginal CAC over time. A blog post that ranks well can generate leads for years at essentially zero incremental cost.

Sources

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