What is a good LTV to CAC ratio?
LTV to CAC is the most quoted SaaS ratio and one of the easiest to flatter. Here is how to use it well.
- Is 3 to 1 the right target?
- How do we calculate LTV with little history?
- Is a 10 to 1 ratio good?
A common target is a lifetime value (LTV) at least three times customer acquisition cost (CAC). David Skok's SaaS Metrics guide notes the best SaaS businesses run above 3 and sometimes as high as 7 or 8. Calculate LTV on gross margin and realistic churn, not revenue and hope. Early-stage ratios are often unreliable because churn data is thin, so pair the ratio with CAC payback.
How to calculate LTV
LTV = average monthly revenue per customer × gross margin ÷ monthly churn rate. With $800 a month, 80% margin and 2% monthly churn, LTV is $800 × 0.8 ÷ 0.02 = $32,000. If CAC is $6,000, the ratio is about 5.3 to 1.
| LTV to CAC | What it usually means |
|---|---|
| Below 1 | You lose money on every customer |
| 1 to 3 | Unit economics are thin; fix CAC, price or churn before scaling |
| 3 to 5 | Healthy for most B2B SaaS |
| Above 5 | Strong, or you may be under-investing in growth |
Why early ratios mislead
With a year of data you don't know your real churn. A 2% monthly churn assumption implies customers stay about four years. If real churn is 4%, LTV halves. That is why we prefer payback for early decisions and use LTV to CAC as a check.
Too high can be a warning
A ratio above 5 sometimes means you could grow faster by spending more. If payback is short and the channel has room, test more budget.
- LTV on revenue rather than gross margin.
- Churn guessed from a few months of data.
- Expansion revenue counted before it is proven.
- CAC without salaries.
- One ratio for very different segments.
- Gross-margin LTV with conservative churn.
- The ratio shown with payback beside it.
- A ratio by segment and by channel.
- Sensitivity check: what if churn doubles?
- Updated quarterly as data grows.
What founders and researchers say
We read the threads, surveys and reports so you don't have to. Each card is our summary, linked to the source.
Skok's guideline: LTV should be more than 3 times CAC, with the best businesses at 7 or 8. Many healthy early companies start below this and improve.
Read the guide →SaaS founders often share very high ratios early on. Replies usually point out that churn assumptions from a few months of data make LTV unreliable.
Browse the threads →Equity-backed companies spend much more on sales and marketing than bootstrapped ones, which is only sensible when LTV clearly exceeds CAC.
Read the benchmarks →Community summaries describe recurring themes across many threads. They are not quotes from individual posts.
Read next
Go deeper in the ShoutEx guides, or check the original sources.
Bring your numbers. We'll tell you what we would do, even if it isn't us.
Book a call →Follow-up questions
Should LTV include expansion revenue?
Only once you have proven expansion data. Otherwise use net revenue retention conservatively.
What churn should a new company assume?
Use what you see, then stress test it with a higher rate.
Is LTV to CAC or payback more important?
Early on, payback, because it uses less guesswork. Later, both.