The four numbers that get checked first: LTV:CAC ≥ 3:1, CAC payback < 12 months, gross margin > 75%, quick ratio > 1 (4 is the quality bar for young SaaS). And the honest LTV is gross-margin-adjusted: (ARPU × margin) ÷ churn, not ARPU ÷ churn.
§1 · The worked example
Northwind Cloud: 400 paying customers, $79 ARPU/month, 3% monthly churn, 80% gross margin, $450 CAC, 30 net-new customers/month. Every formula below uses these inputs.
| Metric | Formula | Worked | Benchmark |
|---|---|---|---|
| MRR | customers × ARPU | 400 × $79 = $31,600 | — |
| ARR | MRR × 12 | $379,200 | — |
| Gross margin | (revenue − COGS) ÷ revenue | 80% | > 75% |
| Monthly churn | lost customers ÷ starting customers | 3% | < 2% is strong |
| LTV (margin-adj.) | (ARPU × margin) ÷ churn | (79 × .8) ÷ .03 ≈ $2,107 | — |
| CAC | sales+marketing spend ÷ new customers | $450 | — |
| LTV : CAC | LTV ÷ CAC | 2107 ÷ 450 ≈ 4.7 : 1 | ≥ 3 : 1 |
| CAC payback | CAC ÷ (ARPU × margin) | 450 ÷ 63.2 ≈ 7.1 mo | < 12 mo |
| Quick ratio | (new + expansion MRR) ÷ (churned + contraction MRR) | 2.5 | > 1 · quality bar 4 |
Month conventions and compounding details change the decimals, not the verdicts. Run your own inputs in the calculator — it also projects 12 months of MRR with churn compounding.
Your numbers, same math: MRR, margin-adjusted LTV, CAC payback and a 12-month projection.
Open SaaS metrics calculator →§2 · The three mistakes that flatter your deck
- LTV without the margin adjustment.
ARPU ÷ churncounts revenue you spend delivering the service. At 80% margin it overstates LTV by 25%; at 60% margin, by 67%. Investors re-do this math — better if your deck already did. - Averaging churn over too long a window. Monthly churn compounds: 3%/month is ~31% a year (1 − 0.97¹²), not 36% — and definitely not "3%". State the period, always.
- Blended CAC hiding paid CAC. If half your signups are organic, blended CAC looks great while every incremental paid customer loses money. Split them before scaling spend.
§3 · Reading the ratios together
Each threshold alone is gameable; the combination isn't. High LTV:CAC with a >12-month payback means the value is real but slow — a cash problem, not a unit-economics problem. Great payback with a quick ratio near 1 means you acquire efficiently into a leaky bucket. And any set of beautiful ratios on top of a <70% gross margin is a services business wearing a SaaS costume — the margin is the denominator hiding inside LTV and payback both, which is why it gets checked first.
§4 · FAQ
How do you calculate LTV for a SaaS?
(ARPU × gross margin) ÷ monthly churn. The margin adjustment is the difference between honest LTV and deck LTV.
What is a good LTV:CAC ratio?
≥ 3:1. Persistently above 5-6 usually signals underinvestment in growth, not genius.
What is a good CAC payback?
Under 12 months of gross profit. Above that, growth is financed on faith (or venture money).
What is the quick ratio?
(new + expansion MRR) ÷ (churned + contraction MRR). Above 1 = growing; 4 = strong for early SaaS.