SaaS Valuation
ResourceJan 25, 2026

LTV/CAC Explained (with SaaS Examples)

Understand LTV/CAC with clear formulas, practical examples, and benchmarks that show when your SaaS unit economics are healthy.

By Amanda White

ltv cacunit economicssaas metricscustomer acquisitionretentiongrowth efficiency

LTV/CAC Explained (with SaaS Examples)

LTV/CAC tells you if growth is efficient and scalable. This guide explains the formula, gives benchmarks, and shows how churn and margin change the ratio.

Table of contents

  1. What LTV/CAC means
  2. Formulas and inputs
  3. Examples with real numbers
  4. Benchmarks and ranges
  5. Common mistakes
  6. Action checklist
  7. Use the LTV/CAC Calculator for this
  8. FAQs
  9. Sources & further reading
  10. Related reading

What LTV/CAC means

LTV/CAC compares the lifetime value of a customer to the cost to acquire them. A healthy ratio means you can reinvest in growth without eroding margins.

flowchart LR
    A[ARPA] --> B[Gross margin]
    B --> C[Churn rate]
    C --> D[LTV]
    D --> E[CAC]
    E --> F[LTV/CAC ratio]

For newer founders

For newer founders

If you are early, focus on CAC payback and churn trends. A smaller ratio can still be viable if payback is quick and expansion grows.

For experienced founders

For experienced founders

Investors care about LTV/CAC stability across cohorts. A strong ratio that deteriorates for newer cohorts is a warning sign.

Formulas and inputs

  • LTV: (ARPA × Gross Margin) ÷ Churn
  • CAC: Sales + Marketing spend ÷ New customers
  • LTV/CAC: LTV ÷ CAC

Examples with real numbers

Example 1: SMB SaaS

  • ARPA: $200/mo, Gross margin: 80%, Churn: 3%
  • LTV ≈ $5,333; CAC = $1,200
  • LTV/CAC = 4.4x

Example 2: Mid-market SaaS

  • ARPA: $1,500/mo, Gross margin: 78%, Churn: 1.5%
  • LTV ≈ $78,000; CAC = $25,000
  • LTV/CAC = 3.1x

Benchmarks and ranges

  • <2x: unsustainable or early experimentation
  • 2x–4x: healthy growth range
  • >4x: efficient, but check growth velocity

Common mistakes

  1. Using gross LTV without margin.
  2. Ignoring churn by cohort.
  3. Treating CAC as a fixed number.
  4. Not aligning LTV/CAC with payback period.

Action checklist

  • [ ] Calculate LTV with gross margin.
  • [ ] Segment churn by cohort.
  • [ ] Track CAC by channel.
  • [ ] Monitor payback monthly.

Use the LTV/CAC Calculator for this

Run the LTV/CAC Calculator: Calculate unit economics

For retention context, use the Churn Calculator.

FAQs

What is a good LTV/CAC ratio? Most SaaS businesses target 3x–4x as a healthy range, with payback under 12–18 months.

How do I calculate LTV? Multiply average revenue per account by gross margin, then divide by churn rate.

How does churn affect LTV? Higher churn reduces LTV significantly, compressing your ratio and limiting growth capacity.

Sources & further reading

  • SaaS Capital – SaaS benchmarks: https://www.saas-capital.com/saas-benchmarks/
  • OpenView – SaaS benchmarks: https://openviewpartners.com/saas-benchmarks/
  • Bessemer – State of the Cloud: https://www.bvp.com/cloud
  • SaaStr – Metrics library: https://www.saastr.com/category/saas-metrics/
  • KeyBanc – SaaS survey: https://www.key.com/about/keybanc-capital-markets/index.html

Related reading

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