Method and assumptions
This simplified model uses average revenue per account, gross margin and monthly logo churn. Cohort analysis is preferable when you have enough history.
LTV = ARPA × gross margin ÷ monthly churn. CAC = sales and marketing spend ÷ new customers.
Worked scenario
Choose one acquisition cohort and use its fully loaded sales and marketing cost, new customers, average revenue, gross margin and observed churn. Run the model for self-serve and sales-led customers separately because acquisition cost, onboarding effort and retention patterns differ materially.
How to interpret the result
The simplified LTV result assumes a stable average churn rate and should be treated as a sensitivity model. LTV:CAC can look attractive while cash payback is too slow, or while a few mature customers inflate the average. Use cohort gross-profit retention and CAC payback beside the ratio before increasing acquisition spend.
Input reference
- Currency
- Example default: USD
- Average revenue per account / month
- Example default: 120
- Gross margin
- Example default: 80%
- Monthly customer churn
- Example default: 3%
- Sales and marketing spend
- Example default: 50000
- New customers acquired
- Example default: 100
Common mistakes
- Using revenue instead of gross profit in LTV.
- Excluding sales payroll, tools or partner commissions from CAC.
- Combining customers with different acquisition motions.
Before using the result
- Use a mature cohort with a documented cost boundary.
- Compare modeled LTV with realized cohort contribution.
- Review ratio, payback and cash runway together.
Questions to check before deciding
What is a healthy LTV:CAC ratio?
There is no universal target. Compare it with payback, growth stage and cash constraints.
Should CAC include salaries?
Include the sales and marketing costs attributable to acquiring the selected customer cohort.
Independent planning calculator. Not financial, tax, legal or investment advice.