SaaS LTV:CAC Simulator
Analyze Unit Economics, Health, and Exit Valuation
LTV to CAC Ratio
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Customer Lifetime Value (LTV)
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CAC Payback Period
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Annual Recurring Revenue (ARR)
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The 2025 Founder's Guide to Unit Economics
For SaaS founders, revenue is vanity, but Unit Economics are sanity. Investors don't just look at how fast you grow; they look at how efficiently you grow. The LTV:CAC Ratio is the "Golden Metric" that determines if your business is a money-printing machine or a cash bonfire.
The Golden Rule (3:1):
For every $1 you spend on marketing/sales (CAC), you should generate at least $3 in Gross Profit (LTV) over that customer's life.
For every $1 you spend on marketing/sales (CAC), you should generate at least $3 in Gross Profit (LTV) over that customer's life.
Key Metrics Defined
- LTV (Lifetime Value): The total gross profit a customer generates before they churn. Formula: (ARPU × Gross Margin %) / Churn Rate.
- CAC (Acquisition Cost): Total Sales & Marketing Spend / New Customers Acquired.
- Payback Period: How many months it takes to earn back the CAC. Ideally <12 months.
Valuation Multiples in 2025
SaaS valuations are driven by the "Rule of 40" (Growth + Profit). Healthy startups trade at 6x-10x ARR. If your LTV:CAC is below 3x, expect a significant discount (2x-4x) because the growth is expensive to maintain.
Frequently Asked Questions
What is a good LTV:CAC?
3:1 is the benchmark. 4:1 is excellent. 5:1 means you are growing too slowly and should spend more on marketing. Below 1:1 is fatal.
How does Churn impact LTV?
Churn is the denominator in the LTV formula. Reducing churn from 5% to 2.5% literally doubles your LTV without raising prices.
Should I include salaries in CAC?
Yes. "Fully Loaded CAC" includes ad spend, tools, AND the salaries of your sales and marketing teams. This is the only honest way to measure efficiency.
What is the Rule of 40?
It states that your Annual Growth Rate % + Profit Margin % should equal 40. Example: 30% Growth + 10% Profit = 40 (Healthy).