What is a good LTV:CAC ratio?

3:1 or higher is the widely cited benchmark for healthy ecommerce unit economics. 1:1 means you break even per customer. Below 1:1 you lose money on every acquisition. Above 5:1 you may be under-spending on ads and leaving growth on the table.

How do I calculate LTV for ecommerce?

Multiply average order value × gross margin % × orders per year × years a customer typically stays active. That's the gross profit a customer brings back over their lifetime. For more precision, subtract retention costs (email tools, loyalty program) from the result.

What is a good CAC for an online store?

There's no universal number — what matters is CAC relative to LTV. A $50 CAC is great if LTV is $200 and terrible if LTV is $40. As a rule of thumb, CAC should be at or below one-third of LTV, and ideally pay back within 3–6 months.

Does CAC include organic customers?

Strictly defined, CAC is paid acquisition cost ÷ paid-acquired customers. Many founders compute a blended CAC (total spend ÷ total new customers including organic) to see overall efficiency. Track both — paid CAC tells you if ads work; blended CAC tells you if the business works.

How is payback period different from LTV:CAC?

LTV:CAC measures total return per customer; payback measures how fast you get the cash back. A 5:1 ratio with a 24-month payback is risky for a small business because your cash is locked up. Aim for a healthy ratio AND a payback inside 3–6 months.

CAC vs LTV Calculator

CAC (Customer Acquisition Cost) and LTV (Customer Lifetime Value) are the two numbers that decide whether an ecommerce store is actually a business or an expensive hobby. CAC is what you pay in ads to get one new buyer. LTV is the gross profit that buyer brings back over time. Compare them and you get the LTV:CAC ratio — the single most useful health check for any store running paid traffic on Etsy, Shopify, Amazon, TikTok Shop, or Pinterest. This calculator gives you all four numbers — CAC, LTV, ratio, and payback period — plus the max you could afford to spend acquiring a customer before the math breaks.

Last Updated: June 2026

New calculator — CAC, LTV, ratio, and payback for ecommerce stores.

Average order value ($)

Mean revenue per order over the last 30–90 days.

Gross margin (%)

What's left after product cost, platform fees, and shipping — before ads.

Orders per customer per year

If a typical buyer orders once a quarter, that's 4.

Customer lifespan (years)

Rough estimate. 1 / (1 − retention rate) if you know retention.

Monthly ad spend ($)

All paid acquisition channels combined.

New customers per month

First-time buyers — not total orders.

CAC

$20.00

Cost to acquire one new customer

LTV

$144.00

Lifetime gross profit per customer

LTV : CAC

7.2 : 1

Healthy

Payback period

3.3 mo

Months to earn back CAC

Unit economics: Healthy

Breakdown

Profit per order: $24.00
Orders per customer (lifetime): 6
Max profitable CAC (break-even): $144.00
Healthy CAC target (LTV ÷ 3): $48.00

Each customer is worth at least 3× what they cost to acquire. You can usually grow faster by spending more on ads — as long as CAC doesn't creep up while you scale.

All calculations are estimates based on average platform fees. Real profits may vary depending on category, ads, and shipping.

Formula

CAC = Monthly ad spend ÷ New customers per month · Profit per order = AOV × Gross margin % · LTV = Profit per order × Orders per year × Customer lifespan (years) · LTV:CAC ratio = LTV ÷ CAC (target ≥ 3:1) · Payback period (months) = CAC ÷ (Profit per order × Orders per year ÷ 12) · Max profitable CAC = LTV (break-even); healthy target = LTV ÷ 3

Worked example

AOV $60, gross margin 40%, customers order 3× per year, average lifespan 2 years, $3,000 monthly ad spend producing 150 new customers.

CAC = 3,000 ÷ 150 = $20
Profit per order = 60 × 0.40 = $24
Orders per customer (lifetime) = 3 × 2 = 6
LTV = 24 × 6 = $144
LTV:CAC = 144 ÷ 20 = 7.2 : 1 (healthy — well above 3:1)
Payback = 20 ÷ (24 × 3 ÷ 12) = 20 ÷ 6 ≈ 3.3 months
Max profitable CAC = $144 · healthy CAC target ≈ $48

Answer: $20 CAC · $144 LTV · 7.2 : 1 ratio · ~3.3 month payback

How it works

Why LTV:CAC matters: a single sale rarely tells you whether ads are working. Many ecommerce categories lose money on the first order and only become profitable on the second or third purchase. LTV:CAC compresses pricing, margin, repeat rate, and retention into one number you can act on.

The 3:1 rule of thumb: most healthy DTC and marketplace stores aim for LTV at least 3× CAC. Below 1:1 you're losing money on every customer — scaling makes it worse. Between 1:1 and 3:1 you're profitable but fragile; raise LTV before raising spend. Above 3:1 you usually have room to spend more on ads and grow faster, as long as CAC doesn't creep up while you scale.

Payback period is the other half: a great LTV:CAC ratio that takes 18 months to pay back can starve a small store of cash. Most bootstrapped ecommerce brands want payback inside 3–6 months so ad spend recycles quickly.

Three levers to improve unit economics: (1) raise AOV via bundles, upsells, and free-shipping thresholds; (2) raise repeat purchase rate via email, SMS, and post-purchase flows — every extra order multiplies LTV at zero CAC; (3) cut CAC by killing the bottom 20% of campaigns and reallocating to your best-converting placements. Doubling any one of these usually moves the ratio more than doubling ad spend ever will.

Common mistakes

Using revenue instead of gross profit when calculating LTV — it inflates the number 2–3× and hides unprofitable products.
Counting total orders as new customers — CAC is ad spend ÷ first-time buyers, not ÷ total orders.
Ignoring payback period. A 5:1 LTV:CAC ratio with a 24-month payback can still bankrupt a small business.
Forgetting to subtract platform fees, payment processing, and shipping from margin before computing LTV.
Scaling ad spend the moment LTV:CAC looks healthy — CAC almost always rises as you scale, eating the margin.

Go deeper with plain-English guides on the same topic.

FAQ

What is a good LTV:CAC ratio?: 3:1 or higher is the widely cited benchmark for healthy ecommerce unit economics. 1:1 means you break even per customer. Below 1:1 you lose money on every acquisition. Above 5:1 you may be under-spending on ads and leaving growth on the table.
How do I calculate LTV for ecommerce?: Multiply average order value × gross margin % × orders per year × years a customer typically stays active. That's the gross profit a customer brings back over their lifetime. For more precision, subtract retention costs (email tools, loyalty program) from the result.
What is a good CAC for an online store?: There's no universal number — what matters is CAC relative to LTV. A $50 CAC is great if LTV is $200 and terrible if LTV is $40. As a rule of thumb, CAC should be at or below one-third of LTV, and ideally pay back within 3–6 months.
Does CAC include organic customers?: Strictly defined, CAC is paid acquisition cost ÷ paid-acquired customers. Many founders compute a blended CAC (total spend ÷ total new customers including organic) to see overall efficiency. Track both — paid CAC tells you if ads work; blended CAC tells you if the business works.
How is payback period different from LTV:CAC?: LTV:CAC measures total return per customer; payback measures how fast you get the cash back. A 5:1 ratio with a 24-month payback is risky for a small business because your cash is locked up. Aim for a healthy ratio AND a payback inside 3–6 months.

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