How to Calculate LTV and LTV:CAC
LTV quoted without gross margin is a vanity number. Revenue is not money you keep.
Last updated 2026-08-17
The formula that matters
Average revenue per account, multiplied by gross margin, divided by monthly churn. The margin adjustment is what separates a useful figure from a flattering one.
Reading the ratio
- Below 1:1 — you lose money on every customer acquired
- Around 3:1 — the usual healthy benchmark
- Far above 3:1 — you may be underinvesting in growth
Payback matters more early on
LTV is a long-run figure and early-stage churn estimates are unreliable. CAC payback period is the more honest constraint when you are small: it tells you how long your cash is tied up per customer.