CAC, LTV & Burn Rate Calculator

CAC and LTV are only meaningful as a pair. A high acquisition cost is fine if customers stay for years and pay well; a low one is worthless if they leave after two months. The ratio between them is the closest thing a subscription business has to a single measure of whether growth is creating or destroying value.

The widely repeated benchmark is 3:1 — a customer should be worth about three times what it cost to acquire them. It is a heuristic rather than a law, and it cuts both ways. Below 1:1 the business is provably losing money on every customer it wins. Far above 3:1 is not automatically good news either: it often means the business is underinvesting in growth and leaving reachable customers unacquired.

A great deal of casual writing on this defines LTV as ARPA divided by churn — revenue per customer times how long they stay. That figure is always too high, because it counts revenue that never becomes profit. Serving a customer has real cost: hosting, support, payment processing, third-party licences.

Multiplying by gross margin corrects it. For a business at 75% margins the difference is a third of the headline number; at 40% margins the revenue-only version more than doubles the true figure. Since LTV:CAC is used to decide how much to spend on acquisition, using the inflated version leads directly to overspending — which is exactly why this calculator shows both and labels the revenue-only figure as the misleading one.

LTV:CAC describes eventual value; payback period describes cash timing. A business can have an excellent 5:1 ratio and still fail, if recovering each customer's acquisition cost takes 30 months and there is not enough capital to bridge the gap. Payback is the constraint that actually binds for most companies, because it determines how fast growth consumes cash.

Under 12 months is generally regarded as comfortable, since each cohort refunds its own acquisition cost within a year and can fund the next. Beyond 18 months growth becomes heavily capital-dependent, and the business is effectively betting that funding stays available long enough for the model to prove itself.

Runway is cash divided by net burn — how long the business survives at the current rate. The practical point is that it is a deadline for a decision, not a countdown to zero. Raising money typically takes three to six months from starting conversations to cash landing, so a company with nine months of runway has perhaps three months of genuine optionality before fundraising becomes urgent rather than chosen.

This is why twelve months is so often cited as the level below which runway becomes the dominant concern. It is not that twelve months is dangerous in itself; it is that the time needed to fix it is a substantial fraction of the time remaining.