Calculate customer lifetime value, acquisition cost, and their ratio — the fundamental unit economics metric for SaaS fundraising and growth decisions.
| LTV:CAC | Rating | Interpretation |
|---|---|---|
| <1:1 | Critical | Losing money on every customer. Fundamental unit economics are broken. |
| 1:1 - 3:1 | Risky | Marginal. Revenue covers CAC but no real profit on acquisition. Hard to raise funding. |
| 3:1 - 5:1 | Healthy | David Skok's minimum threshold. Fundable. Room to grow. |
| 5:1 - 10:1 | Excellent | Strong unit economics. Investors love this range. Scale confidently. |
| >10:1 | Consider Scaling | Often means under-investing in growth. Could acquire more customers profitably. |
The most common SaaS LTV formula uses churn rate rather than a fixed lifetime estimate, because churn gives a mathematically derived lifetime:
If ARPU = $100, GM = 75%, Monthly Churn = 2%, then: LTV = $100 × 0.75 / 0.02 = $3,750
Why use gross margin? Because LTV should represent the profit generated per customer, not just revenue. If you have 40% gross margins, your revenue LTV is meaningless — it overstates the economic value of a customer by 2.5x.
Blended CAC = Total S&M Spend / New Customers Acquired in the same period
3:1 is the widely accepted minimum for venture-fundable SaaS, popularized by David Skok. Below 3:1, you spend more acquiring and serving customers than the profit they generate. 5:1 is good. Above 10:1 usually means you are under-investing in marketing and could grow faster by spending more.
The most common formula: LTV = ARPU × Gross Margin % / Monthly Churn Rate. Example: $100/mo ARPU × 75% GM / 2% churn = $3,750 LTV. This derives lifetime mathematically from churn. The average customer lifetime = 1 / Monthly Churn Rate (at 2% churn, average lifetime = 50 months).
CAC payback = CAC / (ARPU × Gross Margin). Under 12 months is excellent. 12-18 months is good. Over 24 months is a red flag. SaaS companies with long payback periods need significant upfront capital and are riskier. The best SaaS businesses (Zoom, Datadog) have payback under 12 months.
Track MRR, churn, LTV, and 26 SaaS metrics automatically. Connects to Stripe in minutes. Used by 1,000+ SaaS companies.
Try Baremetrics Free →REST API for financial ratios, SaaS metrics, and tax calculations. Free tier: 100 requests/day. Pro: $9/month.
Get API Key →NRR & GRR from expansion, contraction & churn
Capital efficiency: net burn ÷ net new ARR
TX (no state tax) + federal
TurboTax vs H&R Block vs FreeTaxUSA comparison