SaaS Churn & LTV Calculator
Determine if your SaaS business model is actually sustainable by calculating Customer Lifetime Value (LTV) against your Customer Acquisition Cost (CAC).
Health Ratio (LTV:CAC)
Understanding the Core Math of SaaS Companies
Software as a Service (SaaS) is arguably the most lucrative business model in the world due to its high gross margins. However, many founders fail because they track "Total Users" instead of the ultimate golden metric: the LTV:CAC Ratio.
What is Customer Lifetime Value (LTV)?
LTV is the total amount of gross profit you can expect to earn from a typical customer before they inevitably cancel their subscription (churn). If you charge $50 a month and the average customer stays for 10 months, their Gross Revenue Lifetime is $500. After removing server and support costs (Gross Margin), you get your true LTV.
What is Customer Acquisition Cost (CAC)?
CAC is simply your total Marketing and Sales spend divided by the number of new paying customers acquired. If you spend $1,000 on Google Ads and get 10 new subscribers, your CAC is $100.
The 3:1 Golden Rule
Venture Capitalists agree that a healthy SaaS business must have an LTV to CAC ratio of at least 3:1. This means if you spend $100 to acquire a customer, that customer must eventually generate $300 in profit. If your ratio is lower than 1:1, it mathematically means you are burning investors' cash on every single sale and your company is rapidly dying.