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

- URL: https://betteranalyst.com/metrics/ltv-to-cac-ratio
- Published: 2026-11-03
- Updated: 2026-11-03
- Author: David Bressler, Founder (https://betteranalyst.com/authors/david-bressler)

> **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.

Category: [SaaS](https://betteranalyst.com/metrics#saas)

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.

## LTV:CAC ratio 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:

```
=(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)*

| Input | Value |
| --- | --- |
| ARPA (monthly) | $380 |
| Gross margin | 82% |
| Monthly logo churn | 1.6% |
| 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](https://betteranalyst.com/data-connectors/postgresql), [Google BigQuery](https://betteranalyst.com/data-connectors/bigquery), [Snowflake](https://betteranalyst.com/data-connectors/snowflake), [Supabase](https://betteranalyst.com/data-connectors/supabase), [Google Sheets](https://betteranalyst.com/data-connectors/google-sheets).

[Try Better Analyst free](https://betteranalyst.com/signup)

## Further reading

- [Customer lifetime value formula](https://betteranalyst.com/metrics/customer-lifetime-value)
- [How to calculate CAC](https://betteranalyst.com/metrics/customer-acquisition-cost)
- [CAC payback period](https://betteranalyst.com/metrics/cac-payback-period)
- [How to calculate churn rate](https://betteranalyst.com/metrics/churn-rate)

## 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.

## Related metrics

- [Customer Lifetime Value Formula: How to Calculate CLV](https://betteranalyst.com/metrics/customer-lifetime-value)
- [How to Calculate CAC: Customer Acquisition Cost Formula](https://betteranalyst.com/metrics/customer-acquisition-cost)
- [CAC Payback Period: Formula, Example and Excel Calculation](https://betteranalyst.com/metrics/cac-payback-period)
- [How to Calculate Churn Rate: Formula, Excel and Annualizing](https://betteranalyst.com/metrics/churn-rate)