Work out customer acquisition cost, how many months that cost takes to pay back, and LTV to CAC when you know monthly churn. The formulas are on this page, so you can cite them.
Customer acquisition cost (CAC) is the sales and marketing spend used to win new customers, divided by the number of new customers won. Spend and customers must cover the same period. Payback is how many months of gross profit it takes for one customer to cover that CAC.
CAC = sales and marketing spend divided by new customers won.
Monthly gross profit = average monthly revenue per customer times (gross margin percentage divided by 100).
CAC payback in months = CAC divided by monthly gross profit.
That payback line is the same as CAC divided by (monthly revenue times gross margin). Gross margin is entered as a percentage, so 80 means 80%, which the formula treats as 0.80.
If monthly churn is filled in, and it is above 0%, the calculator also estimates lifetime value and the LTV to CAC ratio. Churn here is the share of customers who leave in a typical month, not an annual rate. A churn of 0% would mean customers never leave, so lifetime value is not a finite number and the ratio is left blank. If CAC is £0.00, the ratio is also left blank, because it would require dividing by zero.
LTV = monthly gross profit divided by (monthly churn percentage divided by 100).
LTV to CAC = LTV divided by CAC.
LTV to CAC is sometimes written LTV:CAC. This page shows it as a ratio, for example 3.2 to 1. Money on the result is rounded to the nearest penny. Months are shown to two decimal places.
If gross margin is 0%, or monthly revenue is £0.00, monthly gross profit is £0.00. Payback then has no finite length, because the formula would divide by zero. CAC is still shown.
Sales and marketing spend £50,000. New customers 10. Average monthly revenue £1,000. Gross margin 80%. Monthly churn 5%.
CAC = £50,000 divided by 10 = £5,000. Monthly gross profit = £1,000 times 0.80 = £800. Payback = £5,000 divided by £800 = 6.25 months. LTV = £800 divided by 0.05 = £16,000. LTV to CAC = £16,000 divided by £5,000 = 3.2 to 1.
A short payback means the gross profit from a new customer covers the cost of winning them before much of the year has passed. A long payback means the spend is high for the margin you keep, or the monthly revenue is small. Many B2B teams treat about 3 to 1 as a comfortable LTV to CAC ratio. That is a rule of thumb, not a finding from this page. Use the ratio only when the churn figure is a real monthly rate for this kind of customer. Recalculate when spend, new customers, monthly revenue, margin, or churn changes.
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Cite this tool. Suggested link text: B2B CAC payback calculator. URL: https://adamhughes.studio/tools/cac-payback-calculator