What is a good LTV:CAC ratio for SaaS?

A healthy LTV:CAC ratio for SaaS is typically 3:1 or higher, meaning you generate $3 in customer lifetime value for every $1 spent acquiring them. Ratios below 1:1 indicate you're losing money on each customer. Top-performing SaaS companies often achieve 5:1 or higher, while early-stage startups investing heavily in growth may temporarily operate at 2:1 to 3:1.

How do you calculate LTV:CAC ratio?

The LTV:CAC ratio formula is: Customer Lifetime Value (LTV) ÷ Customer Acquisition Cost (CAC). LTV = (Average Revenue Per User × Gross Margin) ÷ Churn Rate. CAC = Total Sales & Marketing Costs ÷ Number of New Customers Acquired. For example, if your LTV is $3,000 and CAC is $1,000, your ratio is 3:1.

Why do investors care about LTV:CAC ratio?

Investors use LTV:CAC to assess unit economics sustainability and growth efficiency. A ratio above 3:1 signals that your business model is profitable at the unit level and can scale efficiently. It answers the critical question: "For every dollar invested in growth, how much value does the company create?" This directly impacts valuation and fundraising potential.

What's the difference between LTV:CAC and CAC Payback Period?

LTV:CAC measures total return on customer acquisition investment (how much value vs. cost), while CAC Payback Period measures time to recover acquisition costs (how fast). Both are essential: a 5:1 LTV:CAC with 36-month payback is less attractive than 4:1 with 12-month payback. Use both metrics together for complete unit economics analysis.

How can I improve my LTV:CAC ratio?

Improve LTV:CAC by either increasing LTV (reduce churn, increase ARPU through upsells, improve gross margins) or decreasing CAC (optimize marketing channels, improve conversion rates, leverage product-led growth). Our AI analyst can identify which lever has the biggest impact potential based on your specific numbers.

Should I calculate LTV:CAC by customer segment?

Yes, calculating LTV:CAC by segment (enterprise vs. SMB, by channel, by cohort) reveals which customers are most profitable to acquire. Often, aggregate ratios mask that one segment has 6:1 while another has 1.5:1. This insight helps you allocate marketing spend more efficiently and focus on high-value segments.

LTV:CAC Ratio Calculator

Calculate your LTV:CAC ratio instantly. Get AI-powered analysis, SaaS benchmarks by stage, and actionable recommendations to improve unit economics.

Enter Your Values

Average Revenue Per User (Monthly)*

Your average monthly revenue per customer. Calculate by dividing MRR by total customers.

Gross Margin*

Revenue minus cost of goods sold (hosting, support, etc.), typically 70-85% for SaaS.

Monthly Churn Rate*

Percentage of customers who cancel each month. Industry average is 3-7% for SMB SaaS.

Monthly Sales & Marketing Spend*

Total monthly spend on sales salaries, marketing, ads, tools, and related costs.

New Customers Acquired (Monthly)*

customers

Number of new paying customers acquired in an average month.

Formula

LTV:CAC = (ARPU × Gross Margin ÷ Churn Rate) ÷ (Sales & Marketing Cost ÷ New Customers)

This ratio compares the total value a customer generates over their lifetime (LTV) to the cost of acquiring them (CAC). A ratio of 3:1 means you earn $3 for every $1 spent on acquisition.

LTV:CAC Ratio4.8

4.8:1 — Healthy unit economics. Sustainable growth model.

Customer Lifetime Value (LTV)$2,400

Customer Acquisition Cost (CAC)$500

Average Customer Lifespan20.0 months

CAC Payback Period4.2 months

Monthly Gross Profit per Customer$120

Unit Economics HealthHealthy

LTV:CAC Ratio Benchmarks

Top Quartile5:1+ — Excellent unit economics, room to invest in growth

> 5

Healthy3:1 to 5:1 — Sustainable growth model

3 – 4.99

Early-Stage2:1 to 3:1 — Acceptable for growth-mode companies

2 – 2.99

Concerning1:1 to 2:1 — Needs improvement to scale

1 – 1.99

CriticalBelow 1:1 — Losing money on customer acquisition

< 0.99

Source: OpenView SaaS Benchmarks 2024

How to Calculate LTV:CAC Ratio

Enter your Average Revenue Per User (ARPU) - your monthly revenue per customer
Enter your Gross Margin percentage (typically 70-85% for SaaS)
Enter your Monthly Churn Rate (percentage of customers who cancel each month)
Enter your Monthly Sales & Marketing Spend
Enter the number of New Customers Acquired monthly
View your LTV:CAC ratio and unit economics health instantly

SaaS LTV:CAC Ratio Benchmarks

3:1 or higher

Healthy SaaS (Target)

5:1+

Top Quartile SaaS

2:1 - 3:1

Early-Stage Growth Mode

1:1 - 2:1

Concerning / Needs Attention

Below 1:1

Critical / Unsustainable

4.5:1

Enterprise SaaS Average

3.2:1

SMB SaaS Average

5.8:1

PLG Companies Average