How do I calculate customer acquisition cost?

Add up everything you spent on sales and marketing in a period and divide by the number of new customers won in that period.

What is a good LTV to CAC ratio?

A common rule of thumb is 3-to-1 or higher, meaning a customer returns at least three times what it cost to win them, measured in gross profit. Treat it as a guide, not a rule.

Should lifetime value use revenue or profit?

Gross profit. Revenue overstates what a customer is worth because it ignores the cost of delivering the product or service.

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What a new customer costs, and what one is worth

Two numbers tell you whether your marketing is an investment or an expense: what it costs to win a customer, and what that customer brings back over time.

WithFunded Academy · Lesson 11 of 16 · 4 min read · Updated November 2026

Key takeaways

Customer acquisition cost (CAC) is sales and marketing spend divided by new customers won.
Lifetime value (LTV) is the gross profit a typical customer produces over the whole relationship.
A common rule of thumb is an LTV of at least three times CAC.
Payback period tells you how long your cash is tied up before a new customer pays for themselves.

What a customer costs

CAC = sales and marketing spend ÷ new customers won

Count everything spent to win customers in a period: ads, promotions, referral rewards, the software you use for it, and the time of anyone paid to sell. Spend $5,000 in a month and win 20 new customers, and each one cost $250.

What a customer is worth

LTV = average sale × purchases per year × gross margin × years they stay

Use gross profit, not revenue, because the cost of delivering the work comes out first. A customer who spends $300 per purchase, buys 3 times a year at a 45% gross margin, and stays 2 years is worth $810.

Putting them together

$810 ÷ $250 is an LTV-to-CAC ratio of 3.24x. A common rule of thumb is 3-to-1 or better: below that, there may be too little left for overhead and profit. Far above it, you may be underinvesting in growth.

The payback period matters just as much. This customer produces about $34 of gross profit a month, so the $250 comes back in about 7.4 months. Until then, growth uses cash.

Calculator

CAC and lifetime value calculator

Find out what a new customer costs you, what one is worth, and how long the spend takes to come back.

Monthly sales and marketing spend$ New customers per month Average sale$ Purchases per customer per year Gross margin% Years a typical customer stays

Lifetime value to CAC3.24x

What that means: Healthy. You are at or above the common 3-to-1 rule of thumb.
Cost to acquire a customer (CAC): $250
Lifetime gross profit per customer (LTV): $810
Time to earn back the CAC: 7.4 months

Estimates for learning only. Not an offer, a quote, or financial advice.

Three ways to improve the ratio

Lower CAC. Track where each customer came from and move spend toward the cheapest reliable source. Referrals and reviews are often among the lowest-cost channels a local business has.
Raise LTV. A bigger average sale, a repeat purchase, or a longer relationship all lift it. See the three levers of revenue growth.
Convert more of the leads you already pay for. Faster follow-up lowers CAC without spending another dollar. See following up faster.

Why this matters before you finance marketing

Borrowing to scale a channel only works when you know its CAC and payback. If a customer pays back in six months and the financing is repaid over twelve, the numbers can work. If payback takes longer than the term, the payments arrive before the profit does.

Common questions

How do I calculate customer acquisition cost?: Add up everything you spent on sales and marketing in a period and divide by the number of new customers won in that period.
What is a good LTV to CAC ratio?: A common rule of thumb is 3-to-1 or higher, meaning a customer returns at least three times what it cost to win them, measured in gross profit. Treat it as a guide, not a rule.
Should lifetime value use revenue or profit?: Gross profit. Revenue overstates what a customer is worth because it ignores the cost of delivering the product or service.

Next lesson · Sell moreHow to get more local customers: your Google profile, reviews, and referralsA free profile, a review habit, and a referral ask: a low-cost plan for local growth.

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Rate inputs are as of November 2026: a representative 8%–30% APR band for non-bank term financing and a 7.00% prime rate. Worked examples are WithFunded calculations.

Educational content. WithFunded Academy lessons are general information for small-business owners. They are not financial, legal, or tax advice, and they are not an offer or a commitment to lend. Figures are representative examples and WithFunded calculations, not quotes. WithFunded and Big Think Capital are a financing marketplace; we are not the direct lender and do not guarantee funding, approval, rates, or terms. Actual rates, fees, payments, and terms are set by the funding lender and depend on your business, credit, and the product. Where required by state law, the lender provides cost-of-financing disclosures before any agreement is signed.