LTV to CAC Ratio: Formula, Example and How to Calculate It

LTV:CAC ratio formula for SaaS, a worked example from ARPA, gross margin and churn, the Excel formula, and why the 3:1 rule of thumb needs context.

Summary

LTV:CAC = Customer lifetime value ÷ Customer acquisition cost. With LTV = ARPA × Gross margin ÷ Monthly churn, a vertical SaaS company with $380 ARPA, 82% margin, 1.6% monthly churn and a $6,900 CAC has an LTV of $19,475 and a ratio of 2.8:1.

On this page
  1. LTV:CAC ratio formula
  2. How to calculate LTV:CAC ratio in Excel and Google Sheets
  3. Worked example
  4. How to interpret LTV:CAC ratio
  5. Common mistakes
  6. Calculate LTV:CAC ratio with Better Analyst
  7. Further reading
  8. FAQ

LTV:CAC ratio formula

Formula
LTV:CAC = (ARPA × Gross margin ÷ Monthly churn rate) ÷ CAC
  • ARPA: Average monthly recurring revenue per account.
  • Gross margin: Subscription gross margin as a decimal.
  • Monthly churn rate: Share of accounts (or revenue) lost per month. 1 ÷ churn approximates average customer lifetime in months.
  • CAC: Fully loaded sales and marketing cost per new customer.

How to calculate LTV:CAC ratio in Excel and Google Sheets

Excel, using the cells in the worked example below:

Excel
=(B2*B3/B4)/B5

Worked example

A practice-management SaaS for veterinary clinics checks whether it can increase paid acquisition, using the last six months of data.

Unit economics inputs (table starts in cell A1)
InputValue
ARPA (monthly)$380
Gross margin82%
Monthly logo churn1.6%
CAC$6,900
  1. Monthly gross profit per account = 380 × 0.82 = $311.60.
  2. Average lifetime = 1 ÷ 0.016 = 62.5 months.
  3. LTV = 311.60 × 62.5 = $19,475.
  4. LTV:CAC = 19,475 ÷ 6,900 = 2.82, or about 2.8:1.
  5. Capping lifetime at five years (60 months) gives LTV = $18,696 and a ratio of 2.71, a more conservative view.

Result: 2.8:1 LTV to CAC ratio (LTV $19,475 vs CAC $6,900)

How to interpret LTV:CAC ratio

A widely cited SaaS rule of thumb treats a ratio around 3:1 or higher as healthy: each customer returns about three times what it cost to acquire. Below about 1:1 you lose money on every customer; far above 5:1 can mean you're underinvesting in growth. The ratio is only as good as its inputs. Low churn produces a huge implied lifetime that the business may not have observed yet, so cap the lifetime or use observed cohort revenue, and check the payback period too.

Common mistakes

  • Using revenue-based LTV. Multiply by gross margin, or the ratio is inflated by your cost of revenue.
  • Letting a very low churn rate imply 10+ year lifetimes. Cap lifetime at what you've actually observed, or apply a discount rate.
  • Using paid-media CAC instead of fully loaded CAC, which can double the ratio on paper.
  • Blending segments. SMB and enterprise customers often have very different ratios; calculate them separately.

Calculate LTV:CAC ratio with Better Analyst

Connect your data or upload a spreadsheet, then ask in plain English. Better Analyst writes and runs the calculation and shows the steps, so you can check the number.

  • “Calculate LTV:CAC by quarter and by acquisition channel, with lifetime capped at 60 months.”
  • “How would LTV:CAC change if monthly churn fell from 1.6% to 1.2%?”
  • “Show LTV:CAC for SMB and mid-market customers separately.”

Usually calculated from: PostgreSQL, Google BigQuery, Snowflake, Supabase, Google Sheets.

Try Better Analyst free

Further reading

Frequently asked questions

What is a good LTV to CAC ratio?
A commonly cited rule of thumb is about 3:1 or better. Treat it as a starting point: early-stage companies often run lower while they learn, and very high ratios can signal under-investment in growth.
How do I calculate the LTV:CAC ratio in Excel?
With ARPA in B2, gross margin in B3, monthly churn in B4 and CAC in B5, use =(B2*B3/B4)/B5. Format it as a number with one decimal and add ":1" in a label.
Why is my LTV so high?
Usually because monthly churn is very low, which implies a very long lifetime. Cap lifetime at a few years or use observed cohort revenue to keep it realistic.

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