How to use it
- 1Pick how you'll enter churn. If you don't have a rate, choose From customer counts and enter how many paying customers you had on the first day of a month and how many cancelled during it.
- 2Enter average revenue per customer per month (MRR ÷ paying customers) and your gross margin.
- 3Enter CAC: last month's sales and marketing spend divided by last month's new paying customers.
- 4Read LTV:CAC and CAC payback. Try a lower churn rate to see what retention work is worth before you spend on it.
Examples
Self-serve SaaS at $49/month
400 customers at the start of the month, 14 cancelled: 3.5% monthly churn, or 34.8% a year. With $49 ARPA and 80% margin, the average customer stays 28.6 months and is worth $1,120 in gross profit. At $450 CAC that's 2.5:1 with an 11.5-month payback — close, but below the 3:1 benchmark. Dropping churn to 2.5% alone would lift LTV to $1,568 and the ratio to 3.5:1.
B2B tool with annual contracts
$500 a month per account, 75% margin, 1.5% monthly churn, $6,000 CAC from a sales-led motion. Lifetime is 66.7 months, LTV $25,000, ratio 4.2:1 — healthy on paper. But payback is 16 months, so every new deal ties up cash for over a year. That, not the ratio, is what limits how fast this company can hire salespeople.
Cheap AI app with high churn
$15 a month, 70% margin after model costs, 9% monthly churn, $40 CAC from paid social. LTV is only $117, but because payback is 3.8 months the ratio still lands at 2.9:1. High-churn consumer apps can work — as long as acquisition stays cheap.
Formulas used
Monthly churn = customers cancelled in the month ÷ customers at the start of the month. Customers who sign up during the month are left out; including them in the denominator makes churn look lower than it is.
Annual churn = 1 − (1 − monthly churn)¹².
Average lifetime = 1 ÷ monthly churn months — the expected lifetime when a fixed share of customers leaves each month.
LTV = revenue per customer per month × gross margin × lifetime. LTV:CAC = LTV ÷ CAC. CAC payback = CAC ÷ (revenue per customer × gross margin).
Limitations
- infoChurn is treated as constant. In practice new customers churn faster than old ones, so a single average understates early losses and overstates the lifetime of your newest cohort.
- infoExpansion revenue (upgrades, seats) isn't included. If net revenue retention is above 100%, the simple formula undervalues customers — use revenue churn instead of customer churn for that case.
- infoNo discounting: a dollar in year four counts the same as a dollar today. For long lifetimes that flatters LTV; capping at 3–5 years is a common, conservative fix.
- infoBlended CAC mixes organic and paid customers. Calculate it per channel before deciding where to spend more.
Questions people ask
What is a good LTV:CAC ratio?
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3:1 is the usual benchmark: a customer brings in three times what it cost to acquire them, in gross profit. Below 1:1 you lose money on every customer. Well above 5:1 is often a sign you could spend more on growth and still be healthy.
What's a normal monthly churn rate for SaaS?
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It depends heavily on who you sell to. Products for consumers and very small businesses commonly lose 3–7% of customers a month; mid-market and enterprise contracts are often under 1% a month. Compare yourself with companies selling to the same kind of customer, not with SaaS as a whole.
Why is annual churn not monthly churn × 12?
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Because churn compounds on a shrinking base. Losing 3% a month leaves 0.97¹² ≈ 69% of customers after a year, which is 30.6% annual churn, not 36%. The calculator uses the compounded figure.
Should LTV use revenue or gross margin?
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Gross margin. Revenue LTV ignores what it costs to serve the customer — hosting, support, payment fees, and for AI products, model API costs. Comparing revenue LTV with CAC overstates how much each customer is really worth.
How do I calculate CAC?
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Add up sales and marketing spend for a period (ads, tools, and the salaries of people doing sales and marketing) and divide by the number of new paying customers in the same period. If you use a free trial, count customers when they convert to paid, not when they sign up.
What is CAC payback period?
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The number of months of gross profit it takes to earn back the cost of acquiring a customer: CAC ÷ (monthly revenue per customer × gross margin). Under 12 months is widely considered healthy for self-serve SaaS because the cash comes back before most customers have a chance to churn.