Evaluate customer acquisition economics

Acquisition growth creates durable value only when the customers you win generate enough gross profit to repay what it cost to acquire them. This calculator combines customer acquisition cost and discounted lifetime value with payback, profit per customer and two downside scenarios, giving you one consistent view of acquisition economics.

What the CAC and LTV calculator shows

The calculator reports five core outputs:

• Customer acquisition cost (CAC): marketing and sales cost divided by customers acquired, displayed in US dollars to two decimal places.
• Discounted customer lifetime value (LTV): monthly gross profit adjusted for monthly churn and a fixed 1% monthly discount rate, displayed in US dollars to two decimal places.
• LTV:CAC ratio: discounted lifetime value divided by CAC, displayed to one decimal place.
• Payback period: the months of gross profit needed to recover CAC, displayed to one decimal place.
• Profit per customer: discounted LTV minus CAC, displayed in US dollars to two decimal places.

It also shows the LTV:CAC ratio under two downside cases: 20% fewer acquired customers and 20% higher monthly churn. Viewing the measures together helps reveal whether a result is driven by acquisition efficiency, recurring gross profit or retention.

Inputs, defaults and supported ranges

Use inputs from the same acquisition period and keep revenue and churn on a monthly basis:

• Marketing and sales cost: defaults to $50,000; accepts values above $0 up to $1 billion in $1,000 steps.
• Customers acquired: defaults to 100; accepts whole numbers from 1 to 10 million in steps of 1.
• Average revenue per account (ARPA): defaults to $500 per month; accepts values above $0 up to $10 million in $10 steps.
• Gross margin: defaults to 80%; accepts values above 0% up to 100% in 1-point steps.
• Monthly churn: defaults to 5%; accepts values from 0% to 100% in 0.1-point steps.

Results are hidden and an input error is shown when a value falls outside its supported range. For example, zero acquisition cost, negative churn and churn above 100% are invalid.

Exact calculation method

The calculator first calculates monthly gross profit per customer:

Monthly gross profit = monthly ARPA × (gross margin ÷ 100)

It then applies these formulas:

CAC = marketing and sales cost ÷ customers acquired

Discounted LTV = monthly gross profit ÷ ((monthly churn + 1%) ÷ 100)

LTV:CAC ratio = discounted LTV ÷ CAC

Payback period = CAC ÷ monthly gross profit

Profit per customer = discounted LTV − CAC

The LTV formula combines the entered monthly churn rate with a fixed 1% monthly discount rate. It assumes end-of-month cash flow, applies gross margin before retention and discounting, and uses monthly ARPA and monthly churn throughout.

Worked example using the verified defaults

With $50,000 in marketing and sales cost, 100 acquired customers, $500 monthly ARPA, 80% gross margin and 5% monthly churn, monthly gross profit is $400 per customer. The calculator returns:

• CAC: $500.00;
• discounted LTV: $6,666.67;
• LTV:CAC ratio: 13.3x;
• payback period: 1.3 months; and
• profit per customer: $6,166.67.

For the same inputs, the downside ratio is 10.7x with 20% fewer customers and 11.4x with 20% higher churn.

A second tested scenario uses $120,000 in cost, 300 customers, $300 monthly ARPA, 70% gross margin and 4% monthly churn. It returns $400.00 CAC, $4,200.00 discounted LTV, a 10.5x LTV:CAC ratio, 1.9 months to payback and $3,800.00 profit per customer. Its downside ratios are 8.4x with fewer customers and 9.1x with higher churn.

How the sensitivity scenarios work

The customer downside reduces the acquired-customer count by 20%. This raises CAC while holding cost, ARPA, margin and churn constant. The churn downside increases monthly churn by 20%, capped at 100%, while holding every other input constant.

These are focused sensitivity checks, not forecasts. They show how the ratio responds to two adverse changes without combining them or changing the other assumptions.

How to interpret LTV:CAC and payback

There is no single LTV:CAC ratio or payback period that is right for every company. Acceptable economics depend on cash availability, sales-cycle length, retention patterns, gross margin, growth stage and the reliability of your attribution.

Use the ratio as a comparison tool rather than a verdict. A stronger ratio means more discounted value relative to acquisition cost under the entered assumptions, but it can also reflect understated costs or optimistic churn. Payback adds a cash-timing perspective: two customer groups can have similar lifetime economics while taking different amounts of time to recover acquisition spend.

Profit per customer can reveal the spread between discounted customer value and acquisition cost. Read it alongside payback and the downside ratios to see whether apparently attractive economics remain resilient when customer volume or retention weakens.

Assumptions and limitations

The calculator assumes:

• marketing and sales cost and acquired customers refer to the same acquisition period;
• ARPA and churn are both monthly;
• the monthly discount rate remains fixed at 1%;
• gross margin is applied before retention and discounting;
• cash flow arrives at the end of each month; and
• each sensitivity scenario changes only its named input.

The results are only as reliable as the attribution and cohort definitions behind the inputs. Shared brand activity, long sales cycles, offline influence and multi-touch journeys can shift costs or customers between channels. Blended averages may also hide important differences between acquisition periods, channels or customer segments. Treat the output as a decision aid, not an audited valuation or guaranteed forecast.

Related acquisition calculations

Use a ROAS calculation to compare advertising revenue with ad spend, a CPL calculation to evaluate lead-generation cost, and a Churn & Retention calculation to examine how customer loss affects lifetime economics.

Frequently asked questions

What costs should be included in CAC?

Include the marketing and sales costs required to acquire the customers in the measured period. Excluding sales labour, software, agency fees or shared campaign costs can make CAC look artificially low, so apply the same cost boundary whenever you compare periods or channels.

How does the calculator discount lifetime value?

It adds a fixed 1% monthly discount rate to the entered monthly churn rate, converts the combined percentage to a decimal and divides monthly gross profit by that value. Higher churn therefore reduces discounted LTV even when ARPA and margin stay unchanged.

Why does gross margin matter for LTV?

Revenue is not the same as economic contribution. The calculator multiplies monthly ARPA by gross margin before applying churn and discounting, providing a contribution-based value for comparison with acquisition cost.

What happens when monthly churn is 0%?

The fixed 1% monthly discount rate remains in the LTV denominator. The calculator therefore produces a finite discounted lifetime value rather than dividing by zero.

Is a higher LTV:CAC ratio always better?

Not automatically. A high ratio may reflect efficient acquisition, but it can also result from understated costs, optimistic churn or underinvestment in growth. Read the ratio alongside payback, profit per customer, the downside scenarios and the quality of the underlying data.