Worked example
How to calculate LTV to CAC
Lifetime value is the gross-margin dollars you collect from a customer before they leave. At $49 a month, 80% margin, and 4% monthly churn, LTV is $980. Spend $200 to win that customer and the LTV:CAC ratio is 4.9∶1, paid back in about 5.1 months.
Formula
This is the standard SaaS version (the one used in Maven-style LTV:CAC write-ups): monthly contribution divided by monthly churn.
contribution = ARPU × gross margin
LTV = contribution ÷ monthly churn
LTV∶CAC = LTV ÷ CAC
payback months = CAC ÷ contribution
Churn is a decimal in the formula (4% → 0.04). Lifetime in months is 1 ÷ churn, which is the same math: $39.20 × 25 months = $980. A ratio around 3∶1 is the usual “healthy enough” line. Payback is the cash question: how many months of margin until acquisition cost is back.
Example: $49 ARPU, 4% churn, $200 CAC
| Monthly ARPU | $49 |
|---|---|
| Gross margin | 80% (0.80) |
| Monthly contribution | $49 × 0.80 = $39.20 |
| Monthly churn | 4% (0.04) → lifetime 1 ÷ 0.04 = 25 months |
| LTV | $39.20 ÷ 0.04 = $980 |
| CAC | $200 |
| LTV∶CAC | $980 ÷ $200 = 4.90∶1 |
| Payback | $200 ÷ $39.20 = 5.1 months |
The ratio can look fine while cash is tight. 4.9∶1 still means you front $200 and wait about five months to earn it back. If churn rises to 8%, lifetime drops to 12.5 months and LTV falls to $490 — the same $200 CAC is only 2.45∶1.
Open this example in the LTV and CAC calculator
Other write-ups: SaaS pricing, fully loaded employee cost, working hours overlap.
Cite: Do One Job — How to calculate LTV to CAC. https://doonejob.com/ltv-cac-ratio/