CAC, LTV, and Payback: SaaS Unit Economics Explained
Definitions that actually match your model
Customer Acquisition Cost (CAC) is total acquisition spend divided by new customers acquired in the same period.
Lifetime Value (LTV) is gross profit per customer over their lifetime — often modeled as ARPU × gross margin ÷ churn for simple SaaS, or cohort-based for accuracy.
Payback is months until cumulative gross profit from a customer equals CAC.
Formulas
| Metric | Formula |
|---|---|
| CAC | (S&M spend + S&M payroll) ÷ new customers |
| LTV (simple) | ARPU × gross margin ÷ monthly churn |
| LTV:CAC | LTV ÷ CAC |
| Payback (months) | CAC ÷ (ARPU × gross margin) |
Benchmarks (directional)
- Payback under 12 months — strong for SMB/PLG motions with healthy margins
- Payback 12–18 months — common for mid-market SaaS
- Payback 18+ months — needs high retention and expansion; justify with cohorts
Presenting to investors
Show cohort retention, not only logo churn. Tie CAC to channel mix if you run paid + outbound + partners. Align LTV assumptions with net revenue retention if you sell expansions.
Automate the math
Manual spreadsheets break when you add a sales hire or change churn by 0.5%. CashQuil recalculates CAC, LTV, payback, and runway when you edit tariffs, channels, or retention — deep dives: CAC explained and LTV in SaaS.
Frequently asked questions
What is a good LTV:CAC ratio for SaaS?
Many B2B SaaS companies target 3:1 or higher at scale. Earlier-stage companies may be below that while investing in growth — show the path with cohort data, not slogans.
Should CAC include salaries?
Yes for a fully loaded CAC: marketing spend plus sales and marketing payroll attributable to new logo acquisition, divided by new customers in the period.