LTV to CAC Calculator

How to read this number

The lifetime value here is deliberately narrow. It is the contribution your business keeps from a customer, not the revenue they send you. That is average order value multiplied by your gross margin after cost of goods, then multiplied by the number of orders that customer places over their lifetime with you. Cost of goods is the only cost deducted, so shipping you pay, payment fees, returns, discounts you fund, and the time you spend fulfilling are all still inside this number. Treat it as a generous ceiling, and treat the ratio as generous with it.

Every threshold this calculator shows is a convention that operators picked, not a law. The 3 to 1 line and the under 1 line come out of decades of people comparing payback periods, and they are useful shorthand, but they were never measured against your category, your season, or your cash position. The one signal that never lies is the trend. If the same five inputs, taken from the same definitions, show a ratio that was 4 last quarter and 2.4 this quarter, something in the business moved against you. The absolute number tells you roughly where you sit. The direction tells you what is happening.

The assumptions this tool makes are all in the form above and all editable by you: that your margin percentage is calculated after cost of goods only, that lifetime orders is a figure for a single category rather than a customer across everything they buy from you, that orders per customer per month is your real observed repeat rate, and that acquisition cost is total acquisition spend divided by new customers in the same period. Nothing here is a benchmark pulled from an industry report. It is your arithmetic.

A worked example

Take the default inputs. An $85 average order at 62% margin leaves $52.70 of contribution on each order. A customer who places 2.4 orders over their lifetime is worth 2.4 multiplied by $52.70, so $126.48 in lifetime contribution. Against $40 to acquire that customer, the ratio is 3.16 to 1, which lands in the band this tool calls healthy.

Now the timing side, which is the part most people skip. You need $40 back. Each order returns $52.70, so payback is 0.76 of an order. Spread that across a repeat rate of 0.6 orders per customer per month and payback lands at 1.3 months. That 1.3 is the number to actually run the business on, because it is the number of months of buying a new customer has to fund before they have handed their money back. A ratio of 3 with an 18 month payback is a much tighter position than a ratio of 2.5 with a two month payback, and the ratio alone will not tell you that.

The three inputs that are usually wrong

The arithmetic here is trivial. What moves the result is the definition behind each number, and three of the five are routinely defined in a way that flatters the outcome.

Lifetime is usually defined per category, not per customer. Most stores measure a customer's lifetime as their lifetime inside one product line, because that is the only cohort the data supports. If your real repeat behaviour spans categories, your true lifetime is longer than the number you are entering. If it does not, and people buy your core product once, your lifetime number is optimistic by design. Enter the cohort you actually have, not the one you wish you had.

Margin is usually cost of goods, not what actually lands in your account.A 62% margin straight off a supplier invoice does not account for outbound shipping you pay, the 2.9% plus a dollar the card processor takes, the returns you refund, the discount code you funded, and the packaging. The fix is not to guess at each one. It is to take the true contribution per order from a payout reconciliation and enter that as your margin, even if the resulting percentage looks unflattering. The gap between the number the calculator gives you and the number your bank account shows is exactly the leak.

Acquisition cost is usually ad spend, not all acquisition cost. Spend divided by new customers, if that spend is only the ad platform bill, ignores agency retainers and percentages, creative production, the tools that run your email flows, affiliate commissions, and the samples and seeding that never show up in a dashboard. None of those are optional extras. Every one of them buys a customer, so every one of them belongs in the numerator. Most operators who do this properly find CAC is higher than the ad platform told them, and the ratio is thinner than last quarter's number on their dashboard.

How to read a falling ratio

A ratio that drops quarter over quarter is always one of four things moving against you, and the four are price, margin, volume, or acquisition cost. Nothing else is in the formula, so the diagnosis is arithmetic rather than opinion.

Price is falling when discounting becomes your main acquisition channel, or when a competitor undercuts you and you match them. You can see it as a lower average order value. Margin is falling when supplier costs rise and you absorb it, when shipping costs rise, or when a heavier return rate eats into what reaches you. You can see it as a lower margin percentage. Volume is falling when repeat rate drops, which is usually the first thing to move after a product or quality change, and you can see it as fewer orders per customer. Acquisition cost is rising when the platform gets more expensive or your targeting gets worse, and you can see it directly in the input.

Run the calculator four times, once with each input moved on its own back to its old value, and the output that changes most is the one that is actually responsible. This is worth doing quarterly with the same definitions, because the definition of each input changing between quarters can produce a falling ratio that has nothing to do with the business at all.

What to do next

Write the five inputs down with the date and the definition you used for each, then put the same five numbers back in here next quarter. That single repeat measurement is worth more than any threshold, because it turns LTV to CAC from a number you admire into a number you are steering.

Then pick the weakest of the four levers and work it. If payback is fast but the ratio is thin, the constraint is acquisition cost, so the work is creative volume, channel mix, or the agency retainer you are paying. If the ratio is fine but payback is twelve months, the constraint is repeat rate, so the work is post-purchase flow, replenishment reminders, and the reason people are not coming back. Both of those are operations problems, which is the part most operators try to solve by changing the ad account instead. TheClient Churn and Revenue at Risk Calculatorbreaks down what repeat rate is costing you, and theBreak-Even ROAS Calculator runs the same real-number logic on ad economics if acquisition cost is the lever that is actually moving.

One thing this page will not do is tell you what your business is worth or what it will earn. Everything here describes money that has already been collected and spent. Forecasting what comes next is a different job with a different set of assumptions, and anyone who hands you a confident version of that from four input fields is guessing.