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LTV:CAC Ratio Calculator

LTV:CAC is the ratio of customer lifetime value to acquisition cost — a measure of unit economics health. The naive formula (ACV / churn) overstates LTV by ignoring the fact that churn is not constant: early-cohort churn is higher. The sBG-corrected LTV accounts for this non-constant hazard rate. Best-in-class: > 5×; minimum viable: > 3×.

directional Last updated 2026-06-18

Formulas

Naive LTV oversimplified

L T V_{naive} = \frac{A C V \times GM %}{annual churn rate}

Reads as: assumes constant churn — overstates LTV by 20–60% because early-cohort churn is higher than steady-state.

sBG-corrected LTV estimator

L T V_{sBG} \approx L T V_{naive} \times (1 - c), c \approx 0.25 - 0.45 (typical B2B SaaS)

Reads as: shifted Beta-Geometric model accounts for heterogeneous churn across cohorts. Correction factor c increases with churn rate and customer heterogeneity. Use the corrected version for board presentations.

LTV:CAC ratio estimator

LTV:CAC = \frac{L T V}{C A C}

Reads as: for every $1 spent on acquisition, how many $1 of lifetime gross profit is returned. NRR > 100% expands LTV by compounding retention.

Calculator

ACV — annual contract value ($) Annual churn rate (%) Gross margin (%) CAC ($) NRR — net revenue retention (%)

Naive LTV

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sBG LTV

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LTV:CAC (naive)

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LTV:CAC (corrected)

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The sBG-corrected LTV is typically 20–60% lower than naive LTV for B2B SaaS. Use the corrected version for board presentations.

Interpretation

LTV:CAC	Signal	Action
> 5×	Excellent	Scale aggressively — strong unit economics
3–5×	Good	Healthy — optimize and grow
1–3×	Marginal	Fix retention or raise prices before scaling
< 1×	Unprofitable growth	Stop growth spend; fix unit economics first

Source: SaaS Capital SaaS Metrics That Matter 2024 · Bessemer State of the Cloud 2024 · Fader & Hardie sBG model

What is the sBG correction?

The shifted Beta-Geometric (sBG) model, developed by Fader and Hardie, captures the empirical reality that churn is not constant across a cohort. Early customers who churn are more likely to have been a poor fit — the survivors are systematically more loyal. This means that naive LTV (which assumes every period has the same churn rate) overstates lifetime value. The correction factor grows with the annual churn rate: at 5% churn, the correction is modest (~10–15%); at 20%+ churn, it can exceed 50%.