MRR Lab

LTV/CAC Calculator

Calculate and compare Lifetime Value (LTV) to Customer Acquisition Cost (CAC) ratios for your monthly and annual subscription plans.

Monthly Plan Results

Lifetime Value (LTV)

$5,000.00

Customer Acquisition Cost (CAC)

$1,000.00

LTV/CAC Ratio

5

Annual Plan Results

Lifetime Value (LTV)

$6,666.67

Customer Acquisition Cost (CAC)

$1,200.00

LTV/CAC Ratio

5.56

Monthly Plan

Annual Plan

This LTV/CAC calculator helps you evaluate the profitability of your subscription plans by comparing Customer Lifetime Value (LTV) to Customer Acquisition Cost (CAC). This metric is often used to determine the long-term viability of a SaaS startup.

How It Works

  1. Enter your monthly and annual plan metrics:
    • Price (MRR for monthly, ARR for annual)
    • Churn rate (%)
    • Expansion rate (%)
    • Contraction rate (%)
  2. Input your Customer Acquisition Cost (CAC)
  3. The calculator will show:
    • LTV for each plan
    • LTV/CAC ratio for each plan
    • Visual indicators for healthy/unhealthy ratios

Understanding the Results

LTV Calculation

The Lifetime Value is calculated using the following formula:

LTV = Price ÷ (Churn + Contraction - Expansion)

This LTV is an expected value, and the actual value will vary. So it is more accurate if you have lots of subscribers.

Where:

  • Price is your MRR (monthly) or ARR (annual)
  • All rates are converted to decimals (e.g., 5% becomes 0.05)
  • Net churn must be positive for the calculation to be valid.
    • Net churn = Churn + Contraction - Expansion

LTV/CAC Ratio

The LTV/CAC ratio is calculated by dividing the LTV by your CAC:

LTV/CAC Ratio = LTV ÷ CAC

Benchmarks

  • 3:1 or higher: Healthy - Your customer acquisition strategy is sustainable
  • 5:1 or higher: Best-in-class - Excellent unit economics
  • Below 3:1: Needs improvement - Consider optimizing acquisition costs or improving customer retention

Common Use Cases

  1. Plan Comparison: Compare the profitability of monthly vs. annual plans
  2. Pricing Strategy: Test different price points to optimize LTV/CAC ratios
  3. Growth Planning: Determine how much you can afford to spend on customer acquisition
  4. Churn Impact: Understand how reducing churn affects customer lifetime value

Limitations

  • The calculator assumes a steady state for churn, expansion, and contraction
  • It doesn't account for:
    • Time value of money
    • Variable CAC across customer segments
    • Non-linear expansion patterns
    • Seasonality
  • Net negative churn scenarios (where expansion exceeds churn + contraction) are not supported

Tips for Improving Your LTV/CAC Ratio

  1. Reduce CAC:

    • Optimize marketing channels
    • Improve conversion rates
    • Focus on referral programs

  2. Increase LTV:

    • Reduce churn through better onboarding and customer success
    • Drive expansion revenue through upsells and cross-sells
    • Optimize pricing tiers

  3. Balance Growth:

    • Monitor ratio trends over time
    • Adjust spending based on customer segment performance
    • Consider payback period alongside LTV/CAC

Related Metrics

Customer Acquisition

Customer Retention

Revenue Growth