CLTV vs. CAC: how to calculate it and why the benchmark is 3 to 1

Every customer has to be worth more than it costs to win. The CLTV : CAC ratio shows exactly that, and it's one of the first metrics investors ask for.

CAC: what a new customer costs

CAC = (sales + marketing spend) ÷ new customers in the same period.

The most common mistake is counting only ads. Include salaries of the sales and marketing team, tools and agencies. With $40K spent and 100 new customers, CAC is $400.

CLTV: how much margin a customer leaves

The version that matters uses gross margin, not revenue:

CLTV = (average monthly revenue per customer × gross margin) ÷ monthly churn.

With ARPU of 100, 80% gross margin and 5% monthly churn: (100 × 0.8) ÷ 0.05 = 1,600.

The benchmark

• Below 1:1 — every customer loses money.
• 1:1 to 3:1 — barely sustainable.
• 3:1 — what funds and CFOs look for.
• Above 5:1 — looks great, but you may be under-investing in growth.

In the example, CLTV of 1,600 against CAC of 400 is 4:1.

Payback: the other side of the same math

CAC payback is how many months of gross margin a customer takes to repay its cost: 400 ÷ (100 × 0.8) = 5 months. If payback is longer than your runway, growth eats your cash before it pays back.

The CLTV vs. CAC calculator shows the ratio, payback, the payback curve and a sensitivity table by churn and CAC.