What is Customer Lifetime Value (LTV)?

Customer Lifetime Value (LTV) is the total profit you make from a customer over their entire relationship with your business. It equals average order value times the number of repeat purchases times gross margin percentage. For example, if a customer spends $75 per order, makes 3 purchases, and your gross margin is 40%, their LTV is $90. Use the [LTV:CAC calculator](/tools/ecommerce/ltv-cac-calculator) to calculate your LTV based on your business metrics.

What is Customer Acquisition Cost (CAC)?

Customer Acquisition Cost (CAC) is how much you spend on marketing and sales to acquire one new customer. It equals total marketing and sales spend divided by the number of new customers acquired in that period. If you spend $3,000 on ads in a month and acquire 100 customers, your CAC is $30. The calculator compares CAC to LTV to show whether your acquisition spending is sustainable.

What is a good LTV:CAC ratio?

A healthy LTV:CAC ratio is 3:1 or higher, meaning you earn at least $3 in profit for every $1 spent acquiring a customer. A ratio below 3:1 means you are spending too much to acquire customers or not earning enough from them over their lifetime. A ratio above 5:1 may mean you are under-investing in acquisition and leaving growth on the table. Use the [LTV:CAC calculator](/tools/ecommerce/ltv-cac-calculator) to check your ratio.

How do I reduce my Customer Acquisition Cost?

Reduce CAC by improving ad targeting (reaching higher-intent audiences), optimizing landing pages and checkout flow (increasing conversion rate), using organic channels like SEO and content marketing, or testing lower-cost acquisition channels. If your CAC is $50 and you improve conversion rate by 20%, CAC drops to around $42. The calculator shows how lower CAC improves your LTV:CAC ratio.

How do I increase Customer Lifetime Value?

Increase LTV by raising prices (higher average order value), increasing repeat purchase frequency (through email marketing, loyalty programs, or subscriptions), improving retention (reducing churn), or upselling and cross-selling. If your average customer makes 3 purchases and you increase it to 4, LTV increases by 33% without increasing CAC. The [LTV:CAC calculator](/tools/ecommerce/ltv-cac-calculator) shows how these changes affect your ratio.

What is the payback period for CAC?

The payback period is how long it takes to recover your CAC from customer profit. If your CAC is $50 and your average profit per order is $25, the payback period is 2 orders. Shorter payback periods mean faster cash flow and less risk. If the payback period is longer than 12 months, you may struggle with cash flow. Reduce payback by increasing order value or gross margin.

Should I focus on reducing CAC or increasing LTV?

Both. Reducing CAC is faster and easier in the short term (optimize ads, improve conversion rate). Increasing LTV is harder but more valuable in the long term (build retention, increase repeat purchases). A balanced approach is best: reduce CAC to make acquisition efficient, then increase LTV to maximize profit per customer. The calculator shows how each change affects your LTV:CAC ratio.

What if my LTV:CAC ratio is below 1:1?

A ratio below 1:1 means you lose money on every customer. You must either reduce CAC (by pausing unprofitable ad channels, improving targeting, or increasing conversion rate) or increase LTV (by raising prices, increasing order frequency, or improving retention). If you cannot fix the ratio, the business model is not sustainable. Use the [LTV:CAC calculator](/tools/ecommerce/ltv-cac-calculator) to test different scenarios and find a path to profitability.

How do I calculate gross margin for LTV?

Gross margin is revenue minus cost of goods sold, divided by revenue. If you sell a product for $100 and it costs $60 to produce and ship, gross margin is ($100 - $60) / $100 = 40%. Enter this as a percentage in the calculator. Gross margin is not the same as net profit—it excludes fixed costs like salaries and rent. LTV uses gross margin because it measures profit directly attributable to the customer.

How often should I recalculate my LTV:CAC ratio?

Recalculate at least once per quarter, or whenever you change pricing, marketing spend, or retention strategies. If you launch a loyalty program, LTV will increase. If ad costs rise, CAC will increase. The ratio helps you track whether these changes improve or hurt profitability. Use the calculator to model scenarios before making changes, so you know the expected impact on the ratio.

LTV / CAC Ratio Calculator

Model lifetime value against acquisition cost for repeat purchase or subscription businesses, with payback months, health bands, and a one-step sensitivity lever.

100% client-side. Your revenue and spend numbers never leave this browser.

Toggle between e-commerce repeat purchase and subscription churn math , shared CAC and margin inputs apply to both.

Country / region

Saved with your inputs. Math is currency-agnostic; region helps us prioritize localized versions later.

Business model

E-commerce (repeat purchase)Subscription (monthly churn)

LTV : CAC

2.0x

1–3x, break-even band

LTV (gross margin)

$405

CAC

$200

CAC payback

17.8 mo

Gross margin

60%

LTV component breakdown

Increasing purchase frequency by 0.5/year (3 → 3.5) raises your LTV to $472.50 and ratio to 2.4x.

Industry benchmark: above 3x is generally considered healthy for paid growth; above 5x is excellent headroom.

Average order value (USD)

Purchase frequency (per year)

Average customer lifespan (years)

Gross margin (%)

Monthly sales & marketing spend (USD)

New customers per month

How does the LTV / CAC Ratio Calculator work step by step?

The [OnSumo LTV:CAC Calculator](/tools/ecommerce/ltv-cac-calculator) calculates the ratio of Customer Lifetime Value (LTV) to Customer Acquisition Cost (CAC). This ratio shows whether you are spending the right amount to acquire customers and whether your business model is sustainable. You enter your average order value, average number of purchases per customer, gross margin percentage, and customer acquisition cost. The calculator computes your LTV (the total profit you make from a customer over their lifetime) and divides it by your CAC to show the LTV:CAC ratio. The calculation works as follows: LTV equals average order value times the number of repeat purchases times gross margin percentage. CAC is how much you spend on marketing and sales to acquire one customer. The ratio of LTV to CAC shows how many dollars of profit you earn for every dollar spent acquiring a customer.

What does a typical LTV / CAC Ratio Calculator result look like?

An e-commerce store sells products with an average order value of $75. The average customer makes 3 purchases over their lifetime. Gross margin is 40%, and customer acquisition cost is $30. LTV calculation: Average order value: $75 Number of purchases: 3 Gross margin: 40% LTV = $75 × 3 × 0.40 = $90 CAC: $30 LTV:CAC ratio: $90 / $30 = 3:1 This is a healthy ratio. The business earns $3 in profit for every $1 spent acquiring a customer. The payback period is 1.33 orders ($30 CAC / $22.50 profit per order). If the business increases repeat purchases to 4, LTV increases to $120 and the ratio improves to 4:1 without increasing CAC.

Frequently asked questions

What is Customer Lifetime Value (LTV)?
Customer Lifetime Value (LTV) is the total profit you make from a customer over their entire relationship with your business. It equals average order value times the number of repeat purchases times gross margin percentage. For example, if a customer spends $75 per order, makes 3 purchases, and your gross margin is 40%, their LTV is $90. Use the [LTV:CAC calculator](/tools/ecommerce/ltv-cac-calculator) to calculate your LTV based on your business metrics.
What is Customer Acquisition Cost (CAC)?
Customer Acquisition Cost (CAC) is how much you spend on marketing and sales to acquire one new customer. It equals total marketing and sales spend divided by the number of new customers acquired in that period. If you spend $3,000 on ads in a month and acquire 100 customers, your CAC is $30. The calculator compares CAC to LTV to show whether your acquisition spending is sustainable.
What is a good LTV:CAC ratio?
A healthy LTV:CAC ratio is 3:1 or higher, meaning you earn at least $3 in profit for every $1 spent acquiring a customer. A ratio below 3:1 means you are spending too much to acquire customers or not earning enough from them over their lifetime. A ratio above 5:1 may mean you are under-investing in acquisition and leaving growth on the table. Use the [LTV:CAC calculator](/tools/ecommerce/ltv-cac-calculator) to check your ratio.
How do I reduce my Customer Acquisition Cost?
Reduce CAC by improving ad targeting (reaching higher-intent audiences), optimizing landing pages and checkout flow (increasing conversion rate), using organic channels like SEO and content marketing, or testing lower-cost acquisition channels. If your CAC is $50 and you improve conversion rate by 20%, CAC drops to around $42. The calculator shows how lower CAC improves your LTV:CAC ratio.
How do I increase Customer Lifetime Value?
Increase LTV by raising prices (higher average order value), increasing repeat purchase frequency (through email marketing, loyalty programs, or subscriptions), improving retention (reducing churn), or upselling and cross-selling. If your average customer makes 3 purchases and you increase it to 4, LTV increases by 33% without increasing CAC. The [LTV:CAC calculator](/tools/ecommerce/ltv-cac-calculator) shows how these changes affect your ratio.
What is the payback period for CAC?
The payback period is how long it takes to recover your CAC from customer profit. If your CAC is $50 and your average profit per order is $25, the payback period is 2 orders. Shorter payback periods mean faster cash flow and less risk. If the payback period is longer than 12 months, you may struggle with cash flow. Reduce payback by increasing order value or gross margin.
Should I focus on reducing CAC or increasing LTV?
Both. Reducing CAC is faster and easier in the short term (optimize ads, improve conversion rate). Increasing LTV is harder but more valuable in the long term (build retention, increase repeat purchases). A balanced approach is best: reduce CAC to make acquisition efficient, then increase LTV to maximize profit per customer. The calculator shows how each change affects your LTV:CAC ratio.
What if my LTV:CAC ratio is below 1:1?
A ratio below 1:1 means you lose money on every customer. You must either reduce CAC (by pausing unprofitable ad channels, improving targeting, or increasing conversion rate) or increase LTV (by raising prices, increasing order frequency, or improving retention). If you cannot fix the ratio, the business model is not sustainable. Use the [LTV:CAC calculator](/tools/ecommerce/ltv-cac-calculator) to test different scenarios and find a path to profitability.
How do I calculate gross margin for LTV?
Gross margin is revenue minus cost of goods sold, divided by revenue. If you sell a product for $100 and it costs $60 to produce and ship, gross margin is ($100 - $60) / $100 = 40%. Enter this as a percentage in the calculator. Gross margin is not the same as net profit—it excludes fixed costs like salaries and rent. LTV uses gross margin because it measures profit directly attributable to the customer.
How often should I recalculate my LTV:CAC ratio?
Recalculate at least once per quarter, or whenever you change pricing, marketing spend, or retention strategies. If you launch a loyalty program, LTV will increase. If ad costs rise, CAC will increase. The ratio helps you track whether these changes improve or hurt profitability. Use the calculator to model scenarios before making changes, so you know the expected impact on the ratio.