Customer value
Acquisition cost
Free LTV : CAC calculator
The single most important number in marketing economics is the ratio between what a customer is worth (lifetime value, LTV) and what it costs to acquire them (customer acquisition cost, CAC). This free tool — built by a Singapore marketing agency — turns your average order value, purchase frequency, customer lifespan and margin into a margin-adjusted LTV, calculates CAC from your spend and new customers, and shows the LTV:CAC ratio plus your CAC payback period. It runs entirely in your browser and works in any currency.
What LTV:CAC tells you
The widely used benchmark is 3:1 — a customer’s lifetime profit should be about three times what you paid to win them. Around 3–5:1 is the healthy sweet spot: profitable, with enough margin to fund growth. Below 1:1, you lose money on every customer — a signal to fix acquisition or value before spending more. Above 5:1 sounds great, but it often means you’re under-investing: you could likely afford to acquire customers faster and grow more aggressively without hurting profitability.
Why margin-adjusted LTV matters
A common mistake is calculating LTV from revenue instead of profit. If a customer spends $1,800 over their lifetime but your gross margin is 60%, the value you can actually reinvest is $1,080 — not $1,800. Using revenue overstates LTV and tempts you into overspending on acquisition. This tool multiplies lifetime revenue by your gross margin so the ratio reflects real, spendable profit. It’s the same logic behind break-even ROAS.
CAC payback: the cash-flow side
The LTV:CAC ratio tells you if a customer is worth acquiring; CAC payback period tells you how long your cash is tied up before you earn it back. A healthy ratio with a 24-month payback can still strain a small business’s cash flow. Faster payback (ideally under 12 months for most SMEs) lets you reinvest sooner and grow without external funding. Improving payback usually means lifting early customer value or shortening the sales cycle — both things good marketing and a strong website can do.
Frequently asked questions
What is a good LTV:CAC ratio?
Around 3:1 is the standard benchmark, and 3–5:1 is the healthy range. Below 3:1 suggests acquisition is too expensive relative to customer value; above 5:1 often means you could invest more in growth.
How do I calculate CAC?
Divide your total sales and marketing spend over a period by the number of new customers won in that period. Include ad spend, agency or tool costs and the sales effort attributable to acquisition for the truest figure.
Should LTV use revenue or profit?
Profit. Multiply lifetime revenue by your gross margin so LTV reflects money you can actually reinvest. Revenue-based LTV overstates value and leads to overspending on acquisition.
How can I improve my LTV:CAC ratio?
Raise LTV (increase order value, frequency or retention, or improve margin) or lower CAC (better targeting, higher-converting landing pages, and compounding channels like SEO that reduce your reliance on paid ads over time).
