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Free Customer Lifetime Value and CAC Calculator

Work out what a customer is worth, what they cost to win, and the ratio between the two. Includes your payback period in months. No sign-up required.

Average order value

Purchases per year

Customer lifespan in years

Gross profit margin % (optional)

The customer lifetime value formula

The customer lifetime value formula is a chain of three multiplications, with an optional fourth that most people skip and should not:

CLV = Average order value x Purchases per year x Lifespan in years

Worked example. A customer spends $100 per order, orders four times a year, and stays for three years. That is 100 x 4 x 3, giving a lifetime value of $1,200.

The optional fourth step is your gross margin, and it changes the answer more than people expect. That same customer at a 40% margin is worth $480 in gross profit, not $1,200. Since acquisition cost is a real cost, comparing it against revenue you never keep produces a ratio that looks fine while the business loses money. The calculator shows both and flags when the figure is revenue-based.

The point of the number is not the number. It is that knowing a customer is worth $480 tells you what you can afford to spend winning one, which is a decision you cannot make from the first order alone.

How to calculate customer acquisition cost

CAC is the simpler of the two, and the one people most often get quietly wrong:

CAC = Sales and marketing spend / New customers

Worked example. $10,000 spent across a quarter that won 50 new customers gives a CAC of $200.

The mistake is the numerator. A CAC built only from ad spend ignores salaries, agency retainers, tooling and content production, and can understate the real figure several times over. Include everything you spend to win customers, decide once whether the sales team counts, and then stay consistent, because a CAC whose definition drifts tells you nothing about the trend.

The same arithmetic gives cost per lead and cost per acquisition. Replace new customers with leads or conversions in the denominator. Just do not compare a CPA against a CAC and conclude things are improving: CPA counts people who have not paid you.

The CLV to CAC ratio, and where 3:1 came from

Neither number means much alone. A $200 lifetime value is excellent at a $20 CAC and disastrous at a $400 one. The ratio is what people are actually asking about, which is why the question "what is a good CLV to CAC ratio" appears in the People Also Ask box for both terms.

The answer given almost everywhere is 3:1. It is worth knowing that this convention comes from venture-funded SaaS, where gross margins run high and revenue recurs, and that it has since been repeated far outside that world as though it were universal. It is a useful reference point, not a law.

Below 1:1. Customers cost more than they are worth. Every sale makes the hole deeper.
1:1 to 3:1. Profitable per customer, but thin once overheads outside sales and marketing are counted.
3:1 to 5:1. The range usually called healthy, with room to keep spending on growth.
Above 5:1. Often a sign of underinvestment rather than excellence. You could probably win more customers profitably than you currently do.

One warning that applies to every band above: the ratio is only as honest as the lifetime value feeding it. A revenue-based CLV can double or triple the apparent ratio, which is why the tool says so when you have not given it a margin.

Payback period, the question that runs businesses out of cash

A healthy ratio and a healthy business are not the same thing. The ratio asks whether a customer is worth winning eventually. Payback asks how long your money is tied up while that happens.

Payback months = CAC / Monthly gross profit per customer

The gap between the two matters. A business with a superb 6:1 ratio whose lifetime value arrives over four years is paying to acquire customers today and collecting slowly, and growing faster makes the cash problem worse rather than better. That is how profitable-looking companies run out of money.

Twelve months or under is generally treated as comfortable for subscription businesses. Longer is workable if you are funded or cash-rich, and dangerous if you are neither. Read the ratio and the payback together, never one without the other.

How to lower CAC, and why organic changes the shape

The levers, roughly in order of how quickly they tend to work:

Raise conversion rate. It multiplies across every channel at once, so it is usually the fastest single improvement available.
Improve retention. Keeping customers longer raises lifetime value and means you buy fewer replacements, which improves both sides of the ratio.
Tighten targeting. Budget reaching people who will never buy is the most common source of an inflated CAC.
Build channels that do not charge per customer. This is the structural one.

That last point is worth being precise about rather than hand-waving. Paid acquisition has a floor: you pay for every customer, every time, and the price moves with the auction rather than with your effort. Organic search has a cost up front and then keeps delivering, so as organic grows it pulls the blended CAC down without any individual channel getting cheaper. That is not an argument against paid, which buys speed and control that organic cannot. It is an argument against having no other way for customers to find you.

Frequently asked questions

How do I calculate customer lifetime value?

Multiply your average order value by how many times a customer buys in a year, then by how many years they stay. A customer spending $100 four times a year for three years has a lifetime value of $1,200. That figure is revenue, so multiply by your gross margin to get the profit version, which is the one worth comparing against acquisition cost.

What is CLV and how is it calculated?

CLV, customer lifetime value, is the total worth of a customer across the whole time they buy from you rather than on a single purchase. The formula is average order value multiplied by purchase frequency multiplied by customer lifespan. Its purpose is to justify what you can afford to spend winning a customer: if you only look at the first order you will almost always underspend on acquisition and lose to competitors who count the whole relationship.

How do I calculate customer acquisition cost?

Add up everything you spent on sales and marketing in a period, then divide by the number of new customers you won in that period. Spending $10,000 to win 50 customers gives a CAC of $200. Include salaries, agency fees and tooling, not only the ad spend, or the figure will look far better than it is. Whether to count the whole sales team is a judgement call; be consistent so the trend stays meaningful.

What is a good CLV to CAC ratio?

The figure quoted almost universally is 3:1, and it is worth knowing where it comes from before treating it as a target. It emerged from venture-funded SaaS, where gross margins are high and revenue recurs, and it has since been repeated far outside that context. Below 1:1 you are losing money on every customer. Between 1 and 3 you are profitable per customer but with little left for overheads. Above 5:1 you may be underspending on acquisition and leaving growth unclaimed. Use it as a reference point rather than a goal, and compare against your own trend.

What is a good customer LTV?

There is no universal figure, because lifetime value only means something next to what a customer costs to acquire. A $200 lifetime value is excellent if customers cost $20 to win and disastrous if they cost $400. That is why this page computes the ratio rather than presenting either number alone, and why the honest answer to what a good LTV is will always be another question about your CAC.

What is a typical customer acquisition cost?

It varies so widely by industry that cross-industry averages are close to meaningless. Ecommerce often sits in the tens of dollars, B2B SaaS routinely in the hundreds or thousands, and enterprise software far higher. What matters is your own CAC relative to your own lifetime value, and the direction it moves over time. A CAC rising while lifetime value holds steady is a problem regardless of what anyone else pays.

Should CLV use revenue or profit?

Profit, whenever you can. Comparing a revenue-based lifetime value against acquisition cost compares a figure you never keep against a cost you actually pay, and it can overstate the ratio several times over. A customer worth $1,200 in revenue at a 40% margin is worth $480 in gross profit, which turns an apparently healthy 6:1 ratio into 2.4:1. The calculator above shows both and warns you when the ratio is revenue-based.

What is CAC payback period?

The number of months a customer takes to generate enough gross profit to cover what they cost to acquire. It answers a different question from the ratio: the ratio says whether a customer is worth winning eventually, while payback says how long your cash is committed. A business can have an excellent ratio and still run out of money, because the lifetime value arrives over years while the acquisition cost is paid today. Twelve months or less is generally considered comfortable for subscription businesses.

How do I lower customer acquisition cost?

Either spend less to win the same customers or win more from the same spend. Improving conversion rate is usually the fastest, since it lifts everything upstream of it at once. Beyond that: tighten targeting so budget stops reaching people who will not buy, improve retention so you replace fewer customers, and build acquisition channels that do not charge per customer. Organic search is the main one of those, which is why blended CAC tends to fall as organic grows.

What is the difference between CAC and CPA?

CAC counts what it costs to win a paying customer. CPA usually counts what it costs to get any defined conversion, which might be a signup, a trial or a lead, most of whom will never pay. CPA is therefore lower and easier to look good on, which is exactly why the two get confused in reporting. The CAC mode above computes either: change what you put in the denominator and read the result accordingly.