The LTV:CAC ratio compares the profit a customer brings over their whole relationship with you (lifetime value) with what it cost to win them (customer acquisition cost). A 3:1 ratio means each customer earns back three times their acquisition cost in margin. This calculator gives you lifetime value, the ratio, how many months it takes to earn back your CAC, and a plain verdict.
How to use this calculator
- Enter your average order value.
- Enter your contribution margin as a percentage: what an order leaves after product cost, shipping, payment fees and returns.
- Enter how many orders a typical customer places in a year, counting the first one.
- Enter how many years a typical customer keeps buying.
- Enter your CAC: total marketing spend ÷ new customers won in the same period.
- Read lifetime value, the LTV:CAC ratio, the payback period and the verdict.
How do you calculate LTV:CAC?
- Margin per order = average order value × contribution margin %
- Lifetime value (LTV) = margin per order × orders per year × years as a customer
- CAC = total marketing spend ÷ new customers
- LTV:CAC = LTV ÷ CAC
The glossary entry on the LTV:CAC ratio covers the idea behind it. This is a profit-based LTV. Many calculators use revenue instead, which makes the ratio look several times better than it is. A customer who spends ₹10,000 with you at a 40% margin is worth ₹4,000, not ₹10,000. The glossary covers customer lifetime value and contribution margin in more depth.
How the payback period works
Subscription businesses usually divide CAC by monthly margin. Stores get paid in lumps, one order at a time, so this calculator counts orders instead:
- Orders to pay back = CAC ÷ margin per order, rounded up
- Payback months = (orders to pay back − 1) × 12 ÷ orders per year
It assumes the first order lands at month 0 and later orders are evenly spaced through the year. If the first order's margin covers the CAC, payback is immediate. If a customer would need more orders than they ever place, they never pay back.
Worked example
In rupees. Average order ₹1,200 at a 45% margin leaves ₹540 per order. Customers place 3 orders a year for 2 years, so 6 orders and an LTV of 6 × 540 = ₹3,240. CAC is ₹900, so LTV:CAC = 3,240 ÷ 900 = 3.6:1. The first order covers ₹540 of the ₹900, and the second, about 4 months later, covers the rest: a 4-month payback.
In dollars. A $50 order at 40% leaves $20. At 2.5 orders a year for 2 years, that's 5 orders and an LTV of $100. With a $45 CAC, the ratio is 2.2:1. It takes 3 orders to earn back $45, and the third arrives about 9.6 months after the first.
Both brands pay back. The second leaves much less to cover salaries, rent and profit.
CAC is not the same as CPA
CAC and CPA are easy to mix up:
| CPA | CAC | |
|---|---|---|
| Spend counted | Ad spend in one platform, campaign or ad set | All marketing spend, across channels |
| Divided by | Conversions the platform attributes, new and repeat | New customers only |
| Source | Ads Manager | Your store and your invoices |
| Best for | Choosing between ads | Judging whether growth is affordable |
Meta's cost per purchase counts repeat buyers too, so it can sit well below your true cost of a new customer. Work out CAC from your store's new-customer count and your full marketing spend.
What is a good LTV:CAC ratio?
The most quoted rule of thumb is 3:1. It comes from subscription software and is a convention rather than a law, but it's a useful frame for stores too:
| Ratio | What it means |
|---|---|
| Below 1:1 | Each customer earns back less than they cost to win. Growth loses money. |
| 1:1 to 3:1 | Customers pay back, but leave little for fixed costs and profit. |
| 3:1 to 5:1 | Healthy by the common rule of thumb. |
| Above 5:1 | You may be under-investing and could afford to spend more to grow. |
Payback matters as much as the ratio. A 4:1 ratio that takes two years to earn back ties up cash a young brand may not have. If you fund ads from this month's sales, a short payback can matter more than a high ratio.
Be honest with the inputs
- Use real repeat data. Take orders per customer from cohorts in your store reports, not from hopes. A new brand with no history should assume one order, so LTV equals first-order margin, until the data says otherwise.
- Don't stretch the lifespan. If you've traded for one year, don't assume customers stay for five.
- Count repeat discounts. Loyalty codes and subscription discounts lower the margin on later orders.
- Keep periods aligned. Measure CAC and new customers over the same months.
How to improve your LTV:CAC ratio
To raise LTV:
- Give customers a reason to come back, such as refill reminders for consumables, a second-product offer or a subscription.
- Raise average order value with bundles and free-shipping thresholds.
- Protect margin by cutting returns and RTO.
To lower CAC:
- Lift CTR and conversion rate, which lowers cost per purchase. The CPA calculator shows the effect.
- Exclude existing customers from prospecting campaigns so you don't pay to win people you already have. Exclusion audiences explains how.
A strong LTV lets you accept a first-order CPA above break-even on purpose. Find that break-even with the break-even ROAS calculator first, and check first-order profit with the POAS calculator. When you set up Fly ROAS, it asks what a customer is worth to you and turns the answer into campaign settings, so this number is worth knowing before you start.
Frequently asked questions
What is the LTV:CAC ratio?
It's the profit a customer brings over their lifetime divided by what it cost to acquire them. If a customer is worth ₹3,240 in margin and cost ₹900 to win, the ratio is 3.6:1. It tells you whether growth is affordable, which platform metrics like ROAS can't.
What is a good LTV:CAC ratio for e-commerce?
The most quoted rule of thumb is 3:1, borrowed from subscription software. Below 1:1 each customer loses money, between 1:1 and 3:1 there's little left for fixed costs, and well above 5:1 you may be under-investing in growth. Check the payback period too, because a slow payback ties up cash.
How do I calculate CAC for Meta ads?
Divide your total marketing spend by the number of new customers in the same period. For a Meta-only view, use Meta spend ÷ new customers from those campaigns. Don't use Ads Manager's cost per purchase as CAC, because it counts repeat buyers and relies on attribution.
Should LTV use revenue or profit?
Use profit, or more precisely contribution margin: revenue minus product, shipping, fees and returns. Revenue-based LTV makes the ratio look several times better than it is. A customer spending ₹10,000 at a 40% margin is worth ₹4,000 when you compare against CAC.
How do you calculate CAC payback period?
Divide CAC by margin per order and round up to get the orders needed to pay back. With the first order at month 0 and later orders evenly spaced, payback months = (orders needed − 1) × 12 ÷ orders per year. A ₹900 CAC on ₹540 of margin per order, at 3 orders a year, pays back in about 4 months.
