LTV formula
LTV = Average ticket × Purchases per year × Years of average retention.
Example
Average ticket of $150, 4 purchases per year, average 3-year retention: LTV = 150 × 4 × 3 = $1,800.
The LTV/CAC ratio
Comparing LTV to CAC (acquisition cost) shows whether the business is healthy. A widely used benchmark is that an LTV/CAC ratio above 3 indicates a sustainable acquisition model.
Frequently asked questions
Where does the "above 3" benchmark come from?
It's a common benchmark in SaaS and subscription businesses, indicating a customer generates at least 3x what it cost to acquire them, leaving room for other operating costs.
Does this LTV account for profit margin?
No — this is a gross revenue LTV. For a profit-based LTV, multiply the result by your product/service contribution margin.
Do I need to fill in CAC?
It's optional — without it, you'll only see LTV. Fill it in to also see the LTV/CAC ratio.