What this tool helps you decide
Compare the cost of acquiring a customer with the future contribution that customer is expected to generate. This supports acquisition-budget and retention discussions while making the lifetime assumptions explicit.
How to use it
- Match acquisition spending to the cohort of new customers it produced. Include allocated sales salaries, media and agency costs where relevant, but avoid dividing current spend by every historical customer.
- Use average order value excluding GST and an annual purchase frequency. A monthly subscription can be represented with its recurring order value and twelve annual purchases, provided the expected lifetime is expressed in years.
- Use a contribution margin after relevant service or product costs. Revenue LTV alone overstates the amount available to recover acquisition spending.
- Set lifetime from an explicit retention assumption. The tool does not convert churn automatically or assume customers stay forever. Try a shorter lifetime and lower margin in the sensitivity comparison.
Understanding the results
Revenue LTV is expected lifetime sales. Contribution LTV applies the entered margin; it is the measure used in the LTV:CAC ratio. The two values should not be added together.
Payback divides CAC by average monthly contribution. It assumes annual purchases are spread evenly. An annual renewal business can recover cash at very different dates from this smooth estimate.
A large ratio can result from an optimistic lifetime. Compare cohorts with similar maturity and cost allocation, and check whether payback extends beyond the assumed customer relationship.
FOLLOW THE NUMBERS
A worked example
This fixed example is separate from your live inputs. It uses the editable defaults.
- ₹1,00,000 acquisition spend / 100 new customers = ₹1,000 CAC.
- ₹1,000 order value × 4 annual purchases × 3 years = ₹12,000 revenue LTV. At 40% margin, contribution LTV is ₹4,800.
- ₹4,800 / ₹1,000 = 4.8× contribution LTV:CAC. Annual contribution ₹1,600 / 12 is ₹133.333 per month; payback is 7.5 months.
| Measure | Example value |
|---|---|
| Contribution lifetime value | ₹4,800.00 |
| Customer acquisition cost | ₹1,000.00 |
| Revenue lifetime value | ₹12,000.00 |
| Contribution LTV : CAC | 4.8× |
| CAC payback (months) | 7.5 |
| Contribution/customer/month | ₹133.33 |
Common business scenarios
A repeat-purchase retail brand
Estimate observed repeat frequency and separate newly acquired cohorts. Promotional purchases may not repeat at the same margin.
A subscription service
Convert billing frequency consistently and state the assumed retention period. Variable churn, expansion, pauses and discounting require a richer model.
A founder considering higher acquisition spend
Keep a scenario and raise CAC while holding contribution fixed. The ratio and payback show how much room the current assumptions leave, without forecasting future demand.
Assumptions and limitations
Future contributions are undiscounted and uncertain. This is not a valuation of the business or a guarantee that acquisition cash will return.
Do not compare revenue LTV from one report against contribution LTV from another. Cohort, time unit, margin definition and acquisition-cost allocation must agree.
Frequently asked questions
Is LTV based on revenue or profit?
Both are shown separately; the ratio always uses contribution LTV.
Can I model subscriptions?
Use consistent recurring revenue and annual frequency with an explicit expected lifetime. Variable churn and expansion are not automatically modelled.
Does this calculator infer lifetime from churn?
No. You enter an explicit expected lifetime in years. It does not assume stable churn or apply a reciprocal-churn shortcut.
Why can actual payback be later than the result?
The model spreads expected contribution evenly across months. Seasonal buying, annual renewals or delayed collections can shift actual recovery dates.
Should existing customers count in the CAC denominator?
Use new customers acquired by the costs allocated to that cohort. Dividing current acquisition spending by the entire historical base can understate CAC.
What to do next
Validate retention against actual cohorts and compare the acquisition-cost assumptions with your campaign ROI calculation.
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