Validate the financial viability of your paid acquisition strategy. Calculate maximum profitable CAC, required LTV:CAC ratios, and stress-test your unit economics for sustainable growth.
A healthy LTV:CAC ratio is generally 3:1 or higher, meaning your customer lifetime value should be at least three times your acquisition cost. Ratios below 1:1 indicate unsustainable unit economics where you're losing money on each customer.
Excellent (5:1+): Strong profitability with room for growth investment
Good (3:1-5:1): Sustainable with healthy margins
Acceptable (2:1-3:1): Viable but requires careful management
Poor (1:1-2:1): Marginal viability, needs improvement
Unsustainable (<1:1): Losing money on each customer
LTV = Average Order Value × Gross Margin % × Purchase Frequency × Customer Lifespan
For example: £150 AOV × 60% margin × 2.5 purchases/year × 3 years = £675 LTV
Key considerations: Use gross margin (revenue minus direct costs), be conservative with lifespan estimates, and account for churn rates in your frequency calculations. Historical data is more reliable than projections for these metrics.
True CAC includes all costs associated with acquiring a customer: paid media spend, creative production, landing page development, attribution tools, agency fees, and internal team time allocated to acquisition.
Many businesses underestimate CAC by only including media spend. A comprehensive calculation might show 20-40% higher costs when fully loaded, significantly impacting your LTV:CAC ratio and profitability analysis.
Increase LTV: Improve retention rates, increase purchase frequency through email marketing or subscriptions, expand average order value with upsells/cross-sells, and focus on higher-margin products.
Decrease CAC: Optimize conversion rates, improve targeting precision, develop owned media channels, implement referral programs, and focus acquisition on higher-value customer segments.
Generally, improving LTV through retention is more sustainable than solely focusing on CAC reduction, which has natural limits.
Conservative approach (4:1+ LTV:CAC): Early-stage businesses, uncertain market conditions, limited cash flow, or when prioritizing profitability over growth.
Aggressive approach (2:1-3:1 LTV:CAC): Strong cash position, proven product-market fit, competitive market requiring rapid scaling, or when prioritizing market share acquisition.
The key is matching your CAC strategy to your business stage, cash position, and competitive landscape. Many businesses fail by being too aggressive too early or too conservative when market opportunities require speed.
Monthly reviews for active optimization, quarterly deep analysis for strategic planning. LTV calculations require sufficient data maturity—avoid frequent changes based on short-term fluctuations.
Track leading indicators (conversion rates, AOV trends, early retention signals) more frequently than trailing indicators (full customer lifespan data). Focus on directional changes rather than precise calculations.
This calculator employs rigorous financial modeling principles used in institutional investment analysis. The LTV:CAC framework is fundamental to evaluating the sustainability and scalability of any acquisition-driven business model.
Conservative Approach: We recommend using historical data over projections, incorporating fully-loaded CAC calculations, and applying conservative retention assumptions. Over-optimistic unit economics are a leading cause of growth strategy failures.
Scenario Analysis: The growth scenarios help stress-test your unit economics under different strategic approaches. Conservative growth prioritizes profitability, while aggressive growth accepts lower margins for market positioning.