LTV to CAC Ratio Calculator

Enter ecommerce inputs

Average order value

Orders per customer per month

Gross margin percent

Refund and return rate percent

Monthly support or service cost

Customer acquisition cost

Monthly retention percent

Analysis horizon in months

Annual discount rate percent

New customers in cohort

Example data table

Scenario	Average Order Value	Orders/Month	Margin	Refund Rate	Retention	CAC	Estimated Ratio
Baseline fashion store	$120	1.8	55%	4%	78%	$85	2.76 : 1
Improved retention case	$120	1.8	55%	4%	84%	$85	3.63 : 1
Higher CAC campaign	$120	1.8	55%	4%	78%	$120	1.95 : 1

Formula used

1) Gross monthly revenue per customer

Gross Monthly Revenue = Average Order Value × Orders per Month

2) Net monthly revenue after refunds

Net Monthly Revenue = Gross Monthly Revenue × (1 − Refund Rate)

3) Monthly gross profit contribution

Monthly Gross Profit = (Net Monthly Revenue × Gross Margin) − Monthly Service Cost

4) Discounted LTV across the horizon

Discounted LTV = Σ [Monthly Gross Profit × Survival Rate ÷ (1 + Monthly Discount Rate)^t]

5) LTV to CAC ratio

LTV to CAC Ratio = Discounted LTV ÷ CAC

This approach is useful because it adjusts value for margin, refunds, retention decay, support cost, and time value of money.

How to use this calculator

Enter your average order value and monthly order frequency.
Add gross margin to shift revenue into contribution profit.
Include refund rate to reduce inflated revenue assumptions.
Enter monthly support or service cost per customer.
Set CAC based on campaign or blended acquisition spend.
Enter monthly retention and your analysis horizon in months.
Add an annual discount rate for more conservative valuation.
Submit the form and review the ratio, payback, and graph.
Download CSV for spreadsheet work or PDF for reporting.

Frequently asked questions

1) What is a good LTV to CAC ratio?

Many operators use 3:1 as a practical benchmark. Below that, acquisition may be too expensive or retention too weak. A very high ratio can also suggest underinvestment in growth.

2) Why use gross margin instead of revenue alone?

Revenue can overstate customer value. Gross margin focuses on the portion of sales left after direct product cost, which makes the ratio more realistic for decision making.

3) Why does retention affect LTV so strongly?

Small retention improvements compound over time. When more customers remain active each month, their future contribution grows, which pushes LTV upward much faster than one-time order increases.

4) Should I include refunds and returns?

Yes. Refunds reduce realized revenue and can materially change the ratio, especially in categories with high return behavior such as apparel, beauty, and seasonal promotions.

5) What does discounted LTV mean?

Discounted LTV lowers the value of future cash flows. It reflects the idea that profit earned later is less valuable than profit earned sooner.

6) What is payback period in this calculator?

Payback estimates how long it takes customer contribution to recover acquisition cost. Faster payback usually improves cash flow and reduces growth risk.

7) Can I use this for subscription and repeat-purchase stores?

Yes. The model works for both. Subscription businesses may have steadier retention, while repeat-purchase stores may use lower order frequency and more variable lifespan assumptions.

8) Why might my ratio look too high?

Overstated margins, ignored refunds, low service cost assumptions, or optimistic retention can all inflate LTV. Review each input carefully before using the output for budgeting.