CAC and LTV calculator

CAC is acquisition spend divided by new customers: 10,000 dollars spent for 200 new customers is 50 dollars each. Lifetime value is average order value multiplied by gross margin multiplied by orders per customer: 80 dollars at 45 percent margin is 36 dollars of gross profit per order, and three orders makes 108 dollars. The ratio divides that 108 by the 50 dollar CAC to give 2.16x. Payback orders divides CAC by the gross profit per order: 50 divided by 36 is 1.39, so the customer has repaid their acquisition cost partway through the second order.

A ratio above 1.0 means the customer eventually earns more gross profit than they cost. But the payback figure tells you how long the wait is, and the wait matters because you fund the gap from cash. A ratio of 3.0 that takes six orders to pay back is a slow business that needs patient capital. A ratio of 1.5 that pays back on the first order is a fast one that can reinvest immediately. If payback is above 1.0 orders, your first-order economics are negative and the whole model depends on customers coming back. Make sure the orders per customer figure is measured from real cohorts, not guessed.

CAC belongs to the visitors and conversion levers: cheaper traffic or a better conversion rate both lower it. Lifetime value belongs to order value and repeat purchases: a higher average order or one more order per customer raises it directly. Most stores find the repeat lever is the cheapest place to move the ratio, because a post-purchase and winback flow costs far less than another campaign. Run the calculator twice, once with today's orders per customer and once with one more, and you will see what a retention programme is worth before you build it.