CUSTOMER ACQUISITION COST (CAC) & LTV CALCULATOR.

This calculator shows how to estimate customer acquisition cost, customer lifetime value, the LTV to CAC ratio and the CAC payback period for a subscription business. You can change any of the values below, and this will auto-update all results.

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Customer acquisition cost, or CAC, measures how much a business spends to acquire one new paying customer. It is calculated by dividing sales and marketing costs for a period by the number of new paying customers acquired during the same period. Customer lifetime value, or LTV, estimates the gross profit a customer generates before churning. In this simplified subscription model, LTV is calculated by multiplying monthly revenue per customer by gross margin and dividing the result by the monthly customer churn rate.

The LTV to CAC ratio is calculated by dividing LTV by CAC. CAC payback is calculated by dividing CAC by monthly gross profit per customer. These measures should use consistent cohorts and time periods because acquisition costs may precede customer conversions and churn can change as a business grows.

a subscription unit economics example

Let's assume a subscription business spends £50,000 on sales and marketing, acquires 100 new paying customers, receives £120 in monthly revenue per customer, has a 75% gross margin and experiences 3% monthly customer churn. This means that

  1. customer acquisition cost is £50,000 / 100 = £500
  2. monthly gross profit per customer is £120 * 75% = £90
  3. estimated customer lifetime value is £90 / 3% = £3,000
  4. the LTV to CAC ratio is £3,000 / £500 = 6.0 to 1
  5. CAC payback is £500 / £90 = approximately 5.6 months

customer acquisition cost & LTV calculator

To use the calculator, enter the currency, sales and marketing costs, number of new paying customers, monthly revenue per customer, gross margin and monthly churn. The calculator will compute CAC, estimated LTV, the LTV to CAC ratio and CAC payback.


 

 

 

 

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Customer Acquisition Cost
£500
 
Estimated Customer LTV
£3,000
 
LTV : CAC Ratio
6.0 : 1
 
CAC Payback
5.6 months
 
Interpretation
 

FREQUENTLY ASKED QUESTIONS.

  1. What should be included in customer acquisition cost?

    CAC normally includes the sales and marketing costs attributable to acquiring customers, such as advertising, content, salaries, commissions, events, agencies and acquisition tools.

  2. Why must acquisition costs and customers use the same period?

    Using the same period makes the calculation internally consistent, although businesses with long sales cycles should also consider the delay between spending and conversion.

  3. How is customer lifetime estimated from churn?

    This calculator estimates average customer lifetime as one divided by monthly churn. A 3% monthly churn rate therefore implies an average lifetime of approximately 33.3 months.

  4. Why does the LTV calculation use gross margin?

    Gross margin adjusts customer revenue for the direct cost of delivering the product or service, producing a more useful estimate of the gross profit available to recover CAC and cover overhead.

  5. What can make actual LTV differ from this estimate?

    Expansion revenue, discounts, changing margins, different customer cohorts, contraction, reactivation and changes in churn can all affect realised customer value.

CREDITS & REFERENCES

  1. Stripe: How to calculate CAC and interpret LTV/CAC
  2. Other tools: Equity Dilution Calculator, Margin Calculator, Markup Calculator, Margin and Markup Calculator, Percentage Change Calculator, Sales Revenue Target Calculator, Burn Rate & Runway Calculator, Break-Even Analysis Calculator, Cap Table / Pre-Money vs. Post-Money Valuation Calculator, Metaverse Startup Ideas and Metaverse Business Opportunities

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