What is a healthy LTV:CAC ratio?

A ratio of 3:1 (LTV is 3× CAC) is the widely cited benchmark for a sustainable business. Below 1:1, you spend more to acquire customers than they generate. Above 5:1, you may be underinvesting in growth.

How do I calculate average customer lifespan?

Divide 1 by your churn rate. For example, if 20% of customers leave each year (20% annual churn), average lifespan = 1 ÷ 0.20 = 5 years. CRM data or cohort analysis can provide this figure.

Should I use gross or net LTV for decisions?

Use net LTV (after applying gross margin) when comparing to CAC, as CAC is a cost figure. Gross LTV is useful for understanding revenue capacity. Neither accounts for the cost of serving customers beyond COGS.

Customer Lifetime Value Calculator

Customer Lifetime Value (LTV or CLV) estimates the total revenue and profit a single customer will generate over their relationship with your business. Comparing LTV to CAC reveals whether your acquisition economics are sustainable.

How it's calculated

Gross LTV = Avg order value × Purchase frequency × Customer lifespan
Net LTV = Gross LTV × Gross margin %

Frequently Asked Questions

What is a healthy LTV:CAC ratio?: A ratio of 3:1 (LTV is 3× CAC) is the widely cited benchmark for a sustainable business. Below 1:1, you spend more to acquire customers than they generate. Above 5:1, you may be underinvesting in growth.
How do I calculate average customer lifespan?: Divide 1 by your churn rate. For example, if 20% of customers leave each year (20% annual churn), average lifespan = 1 ÷ 0.20 = 5 years. CRM data or cohort analysis can provide this figure.
Should I use gross or net LTV for decisions?: Use net LTV (after applying gross margin) when comparing to CAC, as CAC is a cost figure. Gross LTV is useful for understanding revenue capacity. Neither accounts for the cost of serving customers beyond COGS.