LTV:CAC is the headline number for whether your growth is profitable. It's also one of the most commonly inflated metrics in startup decks, because the "right" way to compute LTV subtracts costs that the flattering way ignores. Here's how to do it honestly.
CAC (Customer Acquisition Cost) = total sales and marketing spend in a period ÷ new customers acquired in that period. Include salaries, ad spend, tools, and commissions — not just ad budget. Excluding sales salaries is the most common way to understate CAC.
The naive formula is LTV = ARPU ÷ churn rate. The honest one is gross-margin-adjusted:
LTV = (ARPU × gross margin %) ÷ monthly churn rate.
If each customer pays $100/mo at 80% gross margin and you lose 4% of revenue monthly, LTV = ($100 × 0.8) ÷ 0.04 = $2,000. Skip the margin adjustment and you'd claim $2,500 — a 25% overstatement that flows straight into the ratio.
LTV:CAC = LTV ÷ CAC. If CAC is $600 and LTV is $2,000, the ratio is about 3.3:1.
LTV:CAC tells you if growth is profitable eventually; CAC payback tells you how long your cash is tied up first. A 4:1 ratio with a 24-month payback can still bankrupt you on the way to that return. Always read the two together.
A dashboard that computes CAC and gross-margin-adjusted LTV from your real numbers — and shows both LTV:CAC and CAC payback side by side — keeps the ratio honest. The template we recommend does exactly that.
Divide lifetime value by customer acquisition cost. Use gross-margin-adjusted LTV = (ARPU × gross margin) ÷ monthly churn, and CAC = total sales+marketing spend ÷ new customers.
Around 3:1 is the healthy benchmark. Below 1:1 you lose money per customer; above 5:1 often signals you're under-investing in growth.
Usually because LTV skips the gross-margin adjustment, CAC excludes sales salaries and tools, or the churn rate used is unrealistically low for early cohorts.
Page built 2026-06-14 from public, dated buying-intent signals. Updated as new signals land.