Churn rate, customer lifetime value, CAC payback, and gross margin are usually presented as four separate calculators, but they're really one calculation viewed from four angles. Your churn rate determines how long a customer sticks around; how long they stick around, combined with your margin, determines what they're worth; and what they're worth, compared to what you spent to acquire them, tells you whether your growth engine actually works.
How it works
Customer lifespan is the inverse of monthly churn: at 3% monthly churn, the average customer stays for 1 ÷ 0.03 ≈ 33 months.
Annualized churn is not simply monthly churn × 12. Churn compounds (the customers lost in January can't churn again in February), so the correct formula is 1 − (1 − monthly churn)¹². At 3% monthly, that compounds to roughly 30% annual churn, not 36%.
Lifetime value (LTV) is gross margin per account (ARPU × gross margin %) multiplied by customer lifespan in months, the total profit, not revenue, a customer generates before they churn.
The LTV : CAC ratio compares that lifetime value to what you spent to acquire the customer. A commonly cited healthy benchmark is 3:1 or higher. Below that, growth is expensive relative to what it returns; well above roughly 5:1 can also signal under-investment in growth.
CAC payback period is how many months of gross margin it takes to recover the acquisition cost: CAC ÷ gross margin per account. Shorter is better: it's the amount of time your cash is at risk on each new customer.
A worked example
At $50/month ARPU, 3% monthly churn, 80% gross margin, and $300 CAC: customers stay an average of 33.3 months, annual churn works out to about 30.6%, gross margin per account is $40/month, LTV is about $1,333, the LTV:CAC ratio is about 4.4x, and CAC payback takes about 7.5 months.
Questions people ask
Should I use logo churn or revenue churn?
This calculator uses logo (customer) churn, the share of accounts that cancel. Revenue churn (the share of MRR lost) can differ significantly if larger accounts churn at a different rate than smaller ones, or if expansion revenue offsets losses. If your revenue churn and logo churn diverge a lot, it's worth tracking both separately.
What's a good LTV:CAC ratio?
3:1 is the most commonly cited healthy benchmark for a growing SaaS business: high enough to be sustainably profitable, without being so high that it suggests you're under-investing in growth. Ratios below 1:1 mean you're losing money on every customer before accounting for fixed costs.
What counts as a good CAC payback period?
Under 12 months is a common target for SaaS businesses, with best-in-class companies achieving 5–7 months. Longer payback periods tie up more cash in growth and make a business more sensitive to churn early in a customer's lifecycle.
Why does my gross margin matter for CAC payback, not just revenue?
Because only the margin portion of revenue is actually available to recover acquisition costs. The rest goes to hosting, support, and other cost of goods sold. A business with 50% gross margin needs twice as long to pay back the same CAC as one with 80% margin, at the same ARPU.
Is 3–8% monthly churn normal?
It depends heavily on segment: SMB-focused SaaS commonly sees 3–8% monthly churn, while enterprise-focused SaaS often sees under 1–2%, reflecting longer contracts and higher switching costs. Compare your number to businesses selling to a similar customer size, not to SaaS broadly.
Guides
- LTV to CAC Ratio Explained, With the Math Behind ItLTV:CAC compares what a customer is worth with what it cost to win them. Here is how each side is calculated and why churn and margin move it so much.
- Why Annualizing Monthly Churn Isn't Just Multiplying by 12A 3% monthly churn rate doesn't compound to 36% a year. It compounds to about 30%. Here's the actual math, and why the difference matters.