How do customer acquisition cost, lifetime value and payback relate?

CAC measures acquisition spending per new customer, while LTV estimates gross profit produced across the customer relationship. Their ratio and payback period connect growth spending with unit economics.

Connecting acquisition spend with customer value

Customer acquisition cost divides marketing spend by newly acquired customers. Annual customer profit multiplies order value, yearly order frequency and gross margin.

Lifetime value extends that annual profit across the entered lifespan. The LTV-to-CAC ratio compares the two, while payback months divide acquisition cost by annual profit and convert the result into months.

One cohort’s unit economics

The default figures calculate acquisition cost from spend and customers, then use revenue, margin and lifetime assumptions to estimate value and recovery time.

LTV to CAC5.85:1
Lifetime value$468.00
Cost to acquire$80.00
Payback period (months)6.15

Ratio quality versus cash recovery time

LTV-to-CAC compares value with acquisition cost; payback estimates how long contribution takes to recover CAC. A strong-looking ratio can still hide a payback period that strains cash.

CAC, gross-profit LTV and payback

CAC = Marketing spend ÷ New customersAnnual profit = Order value × Orders per year × Gross margin%LTV = Annual profit × Lifespan in yearsPayback = CAC ÷ Annual profit × 12

Cohort and gross-margin consistency

Using revenue instead of gross profit inflates LTV. Churn, margin and lifetime must also be defined consistently for the same customer cohort.

  • Acquisition spend and acquired customers belong to the same cohort.
  • Average revenue, margin and lifetime remain stable in the estimate.
  • Discount rates, expansion revenue and support-cost changes are excluded.

Calculations related to cac and ltv

The following tools examine neighbouring parts of the same calculation without changing the inputs or assumptions used above.

Quick answers

Frequently asked questions

Should LTV use revenue or gross profit?

This calculator applies the entered gross margin to customer revenue before calculating LTV.

How is CAC payback period calculated?

CAC is divided by annual profit per customer and multiplied by 12.

Does LTV include customer retention changes or discounting?

No. Order frequency, margin and lifespan are treated as constant, with no discounted cash-flow adjustment.

Educational content only. This guide is not financial advice.