Quick Answer

A business earning $100/month per customer with $30 in variable costs, a $500 CAC, and a 24-month average lifespan has an estimated contribution margin of $70/month, LTV of $1,680, LTV:CAC ratio of 3.4:1, and a payback period of approximately 7.1 months.

Revenue per Unit ($/month)

Variable Cost per Unit ($/month)

Direct cost to serve one unit/customer.

Customer Acquisition Cost ($)

Customer lifespan input method

Avg. lifespan (months) Monthly churn rate (%)

Avg. Customer Lifespan (months)

Monthly Churn Rate (%)

Avg. lifespan is calculated as 1 / churn rate.

Common Examples

Input	Result
$100/mo revenue, $30 cost, $500 CAC, 24 months lifespan	Margin $70/mo (70%), LTV $1,680, LTV:CAC 3.4:1, payback ~7.1 months
$50/mo revenue, $15 cost, $200 CAC, 36 months lifespan	Margin $35/mo (70%), LTV $1,260, LTV:CAC 6.3:1, payback ~5.7 months
$200/mo revenue, $80 cost, $1,000 CAC, 18 months lifespan	Margin $120/mo (60%), LTV $2,160, LTV:CAC 2.2:1, payback ~8.3 months
$500/mo revenue, $100 cost, $2,000 CAC, 12 months lifespan	Margin $400/mo (80%), LTV $4,800, LTV:CAC 2.4:1, payback ~5.0 months
$75/mo revenue, $10 cost, $150 CAC, 5% monthly churn	Margin $65/mo (86.7%), LTV $1,300, LTV:CAC 8.7:1, payback ~2.3 months

How It Works

This calculator uses the standard unit economics formulas for subscription and recurring-revenue businesses:

Contribution Margin = Revenue per Unit - Variable Cost per Unit

Contribution Margin % = (Contribution Margin / Revenue per Unit) x 100

LTV = Contribution Margin x Average Customer Lifespan (months)

LTV:CAC Ratio = LTV / Customer Acquisition Cost

CAC Payback Period = CAC / Contribution Margin

Where:

• Revenue per Unit = the average monthly revenue generated by one customer or unit
• Variable Cost per Unit = the direct monthly cost to serve one customer (hosting, support, COGS)
• Contribution Margin = the monthly profit per unit available to cover fixed costs and generate profit
• CAC = the total cost to acquire one new customer
• LTV = the total profit expected from one customer over their entire relationship

LTV:CAC benchmarks

The widely cited benchmark for a healthy business is an LTV:CAC ratio of 3:1 or higher. This means each dollar spent on acquisition returns at least three dollars in contribution-margin-adjusted lifetime revenue.

• 3:1 or higher = generally considered healthy and sustainable
• 1:1 to 3:1 = acquisition costs are being recovered, but growth margin may be limited
• Below 1:1 = the business spends more to acquire a customer than it earns back

Churn rate and lifespan

If you know your monthly churn rate rather than the average customer lifespan, the calculator derives lifespan as 1 / churn rate. For example, a 5% monthly churn rate implies an average lifespan of 1 / 0.05 = 20 months. This is an approximation that assumes a constant churn rate.

Payback period

The CAC payback period measures how many months it takes for a new customer’s contribution margin to cover the acquisition cost. A payback period under 12 months is generally considered healthy. Longer payback periods tie up more capital in customer acquisition before seeing returns.

Worked example

A SaaS company charges $100/month per customer. Variable costs (hosting, support, third-party tools) are $30/month per customer. Customer acquisition cost averages $500. The average customer stays 24 months. Contribution Margin = $100 - $30 = $70/month (70%). LTV = $70 x 24 = $1,680. LTV:CAC = $1,680 / $500 = 3.36:1. Payback = $500 / $70 = 7.1 months. The 3.4:1 ratio exceeds the 3:1 benchmark, and the 7.1-month payback falls well within the 12-month target, indicating healthy unit economics.

Related Calculators

Customer LTV Calculator

Calculate customer lifetime value (LTV), LTV:CAC ratio, and net LTV for any subscription or recurring-revenue business.

CAC Payback Calculator

Calculate customer acquisition cost (CAC) and the number of months to recover that cost from per-customer gross profit.

Frequently Asked Questions

What is a good LTV:CAC ratio?

The standard benchmark is 3:1 or higher, meaning each customer generates at least three times the cost to acquire them in lifetime contribution margin. Ratios below 1:1 indicate the business loses money on every customer acquired. Ratios between 1:1 and 3:1 mean costs are recovered, but there may not be enough margin to cover fixed costs and fund growth.

Why does unit economics matter?

Unit economics determines whether a business model is fundamentally profitable on a per-customer basis. A company can grow revenue rapidly while losing money on every customer if acquisition costs exceed lifetime value. Tracking contribution margin, LTV, and LTV:CAC ratio reveals whether growth is sustainable or whether the business needs to adjust pricing, reduce costs, or improve retention.

How does SaaS unit economics differ from e-commerce?

SaaS businesses typically have high gross margins (70-90%) and recurring monthly revenue, so LTV accumulates over months or years of the subscription. E-commerce businesses often have lower margins and may rely on repeat purchases rather than subscriptions. The same formulas apply, but the inputs differ: SaaS uses monthly subscription revenue and churn-based lifespan, while e-commerce uses average order value and purchase frequency.

Should I use lifespan or churn rate?

Both produce the same result. If you track monthly churn rate (percentage of customers who cancel each month), the calculator converts it to average lifespan using 1 / churn rate. If you already know the average customer lifespan from historical data, enter that directly. Use whichever metric you have more confidence in.

What is contribution margin?

Contribution margin is the revenue remaining after subtracting variable costs directly tied to serving one customer or producing one unit. It represents the amount each unit contributes toward covering fixed costs (rent, salaries, overhead) and generating profit. A $100/month customer with $30/month in variable costs has a $70 contribution margin, or 70%.