LTV, LTV:CAC ratio and CAC payback calculator
Revenue LTV flatters. This models lifetime value in contribution, the money you actually keep, so the LTV:CAC ratio and the payback month mean something in a board pack.
How it is calculated
Every customer places a first order in month 0. A share of them become repeat customers and order again through the year; each following year, only a share of those repeat customers stay active.
Contribution per order = AOV × contribution margin Year 1 repeat orders = Repeat rate × orders per repeat customer per year Year n repeat orders = Year 1 repeat orders × retention^(n−1) LTV (contribution) = Σ monthly orders × contribution per order LTV:CAC = LTV ÷ CAC Payback month = first month where cumulative contribution ≥ CAC
Repeat orders are spread evenly across the months of each year. Contribution margin should be after product cost, fulfilment, fees and returns, but before marketing; the break-even ROAS calculator gives you this number.
How to use the result
A ratio of 3 or more over 24 months is a healthy benchmark for most D2C brands; below 1, acquisition destroys value. Payback matters as much as the ratio: a 4:1 business that pays back in month 18 needs far more working capital than a 3:1 business that pays back in month 3.
Questions
What is a good LTV:CAC ratio?
A common benchmark is 3:1 or better, measured on contribution rather than revenue. Between 1:1 and 3:1 the model can work but is fragile; below 1:1, each new customer loses money over their lifetime.
How do you calculate customer lifetime value?
Multiply contribution per order by the number of orders a customer places over a chosen horizon, such as 12, 24 or 36 months. The number of orders comes from your first order plus repeat purchases, adjusted for how many repeat customers stay active each year.
What is CAC payback period?
CAC payback period is the number of months it takes for the cumulative contribution from a customer to equal the cost of acquiring them. Shorter payback means growth can be funded from cash flow.
Should LTV use revenue or margin?
Use contribution margin. Revenue LTV ignores product cost, fulfilment and fees, and can make a loss-making acquisition strategy look profitable.
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