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Unit economics: CAC, LTV and payback

See what it costs to win a customer, what that customer is worth over their lifetime, and how many months it takes to earn the acquisition cost back.

Your numbers

Ads, tools, events, and sales and marketing salaries.
£
Also called ARPA. Use the monthly equivalent for annual plans.
£
Revenue left after hosting, support and payment costs.
%
Share of paying customers who cancel each month.
%

LTV:CAC ratio

–

–

CAC payback

–

–

Customer acquisition cost (CAC)

–

Lifetime value (LTV)

–

Gross-margin based

Monthly contribution per customer

–

Revenue × gross margin

Average customer lifetime

–

1 ÷ monthly churn

Payback over 36 months

What this means

    What would it take?

    To reach an LTV:CAC of 3, with everything else unchanged, you would need one of these:

    Monthly churn at or below–
    Revenue per customer of at least–
    CAC at or below–
    How it works
    • CAC = monthly sales and marketing spend ÷ new customers that month. This is a blended figure: it spreads all spend across all new customers, including ones who would have found you anyway.
    • Monthly contribution = average revenue per customer × gross margin. This is what each customer adds towards covering your costs after the cost of serving them.
    • Customer lifetime = 1 ÷ monthly churn. At 3% churn the average customer stays about 33 months.
    • LTV = revenue per customer × gross margin ÷ monthly churn. It assumes revenue per customer and churn stay flat, with no expansion revenue and no discounting for the time value of money.
    • LTV:CAC = LTV ÷ CAC. CAC payback = CAC ÷ monthly contribution, in months. Payback ignores churn: it is how long a customer who stays takes to repay their acquisition cost.
    • The chart’s dashed line shows the average customer once churn is allowed for: contribution × (1 − (1 − churn)month) ÷ churn.
    • Rules of thumb, not laws: LTV:CAC of 3 or more is usually called healthy, 1 to 3 is worth watching, and below 1 means you lose money on each customer. CAC payback within 12 months is good for tech startups selling to small businesses, 12 to 24 months is worth watching, and over 24 months is a risk. Enterprise sales often run longer paybacks with lower churn.
    • Everything is worked out in your browser. Nothing you type is sent anywhere.

    Bring your numbers to the room

    Techcelerate members work through results like these together in Execution Sprints, with tech founders who have built, failed and exited.

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