How LTV/CAC is calculated here
LTV = ARPA × gross margin ÷ monthly churn. Revenue alone overstates value — a customer paying $120 with 78% margin contributes $93.60 a month. Divided by 3% churn, that is about 33 months of life and $3,120 of gross profit.
CAC = sales & marketing spend ÷ new customers. Fully loaded, including salaries, not just ad spend.
Payback = CAC ÷ (ARPA × gross margin). Months until a customer has paid back what it cost to acquire them. Under 12 months is healthy for SMB SaaS; enterprise often runs 18–24.
What is a good LTV:CAC?
- Below 1× — every new customer loses money. Growth makes things worse.
- 1–3× — works on paper, but leaves little room for overhead.
- Around 3× — the usual benchmark investors quote.
- Above 5× — often a sign you are under-investing in growth.
The most common mistake we see in audits: LTV = price × 12. It ignores both churn and margin and can be off several times in either direction — see mistake #4.