What this calculator does

Two numbers shape whether a business can grow profitably: what it costs to win a customer (CAC, customer acquisition cost) and what that customer earns you over time (LTV, lifetime value). This calculator works out both, along with how they compare and how long it takes to earn back your acquisition cost. Your numbers stay in your browser.

The formulas

CAC = sales and marketing spend ÷ new customers won
Yearly gross profit = average order × purchases per year × gross margin
LTV = yearly gross profit × years as a customer
LTV to CAC ratio = LTV ÷ CAC
Payback period = CAC ÷ monthly gross profit

Some people calculate LTV using revenue. We use gross profit because that's the money available to pay back your acquisition cost, so the picture is more cautious and more realistic.

A worked example

These are the illustrative numbers loaded above. A business spends ₹2,00,000 and wins 100 customers, so CAC is ₹2,000. Each customer spends ₹1,500 four times a year at a 50% margin, which gives ₹3,000 of gross profit a year. Over three years, LTV is ₹9,000. The ratio is 4.5:1, and the business earns back its ₹2,000 in 8 months.

What ratio should you aim for?

A ratio of 3:1 is a popular rule of thumb, especially among subscription businesses, but it isn't a law. A business with quick repeat purchases may do well on less, while one with slow payback may need more. A much higher ratio can even suggest that you're underinvesting in growth. The ratio tells you most when you compare it with your own past results and your cash position.

Why payback matters, especially for smaller businesses

A strong LTV doesn't pay this month's bills. If it takes 18 months to earn back what you spend on each customer, growth can drain your cash even though every customer is profitable in the end. Founders funding growth from their own revenue should watch the payback period closely.

How to avoid misleading numbers

Include all acquisition costs. Count ad spend, agency fees, sales salaries and tools, not just ads.
Use real retention. Early-stage businesses often guess how long customers stay. Use cohort data when you have it, and be cautious until then.
Calculate by channel. A blended average can hide one strong channel propping up a weak one.
Remember that this is simplified. It ignores discounting of future income and assumes steady buying. Use it for direction, not as a valuation.

CAC and LTV calculator