Financial
Customer Lifetime Value (LTV), LTV:CAC ratio, and CAC Payback formula
Calculate gross-margin-adjusted Customer Lifetime Value (ARPU * GrossMargin / Churn), LTV:CAC ratio, and months to recover Customer Acquisition Cost.
A simplified gross-margin LTV model
This example estimates undiscounted gross-margin LTV as monthly ARPU times gross margin divided by constant monthly customer churn. It assumes stationary unit economics and no expansion.
LTV:CAC and payback are descriptive model ratios. A 3x ratio is an illustrative comparison, not a universal definition of a healthy business.
| Metric | Input / Formula | Result |
|---|---|---|
| Monthly Gross Profit / Cust | $120 ARPU * 80% GM | $96.00 / mo |
| Expected Customer Lifespan | 1 / 4% Monthly Churn | 25.0 months |
| Gross-Margin LTV | $96.00 / 0.04 | $2,400.00 |
| LTV:CAC & Payback ($800 CAC) | $2,400 / $800 | $800 / $96 | 3.00x | 8.33 mos |
Gross-margin LTV, LTV:CAC, and Payback Month formulas
Guard MonthlyChurn <= 0 so zero-churn early cohorts return an explicit label rather than #DIV/0!.
=IF(OR(C2<=0,C2>1), "Invalid churn", ROUND((A2 * B2) / C2, 2))CAC Payback period in months
Divides upfront Customer Acquisition Cost by monthly gross profit per customer.
=ROUND(D2 / (A2 * B2), 2)Inputs and interpretation
Use positive ARPU and CAC, gross margin in (0,1], and customer churn in (0,1]. A zero observed churn rate does not establish infinite lifetime; negative churn is not valid customer-loss probability. Payback requires positive monthly gross profit. Timing, discounts, changing retention, expansion and cohort differences require a richer cash-flow model.
Try the example
Use the original values or change them to test your understanding.