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What can you afford to pay for a customer?

LTV:CAC on contribution rather than revenue, and payback measured in months against real order timing — because the ratio tells you about profit and the payback tells you about cash.

What LTV:CAC and payback mean

LTV:CAC compares the contribution a customer produces against what it cost to acquire them. Payback is the number of months before that contribution covers the cost. The ratio describes eventual profitability; the payback describes how long your cash is tied up — and for a business buying inventory, the second question is usually the one that decides whether growth is survivable.

Your acquisition maths.

Same cohort inputs as the CLV calculator, plus what a customer costs. One model, asked a different question.

Customer acquisition cost

All acquisition spend ÷ new customers. Include agency fees, creative and the salary share — a media-only CAC inflates every number below it.

Customers in the cohort

Reached a second order

Reached a third

Average order value

Gross margin %

Median days between orders

Sets when the contribution actually arrives, which is what payback measures.

JavaScript is off, so the figures stay on the worked example. LTV:CAC = lifetime contribution ÷ acquisition cost; payback is the first month where cumulative contribution passes CAC.

Payback

3 months

Before $48 of acquisition cost is covered by contribution.

LTV:CAClifetime contribution ÷ CAC: 1.24 : 1
Lifetime contributionfrom the cohort model: $59.73
Contribution on the first orderAOV × margin: $42.16
Covered by order one?the only self-funding case: no

Contribution covers acquisition cost in month 3, which is inside the horizon your inputs evidence.

Why the 3:1 rule does not apply to you

The most quoted number in growth marketing came from software, and it does not survive the journey to physical goods.

1

It assumes near-zero marginal cost

Serving one more SaaS seat costs almost nothing. Serving one more order costs you the goods, the pick, the pack and the postage — which is why every figure on this page is contribution rather than revenue.
2

It assumes predictable retention

A subscription renews until it is cancelled. An ecommerce customer decides again every time, which is what the decay ratio in the model represents and what a flat lifespan assumption erases.
3

It says nothing about cash

Two businesses with an identical 3:1 ratio, one paying back in 2 months and one in 14, are not in the same position. The second is financing its own growth out of working capital and will feel it well before the ratio moves.
4

So use payback as the constraint

Decide the payback period your cash position can carry, then let that set what you can pay for a customer. The ratio becomes a consequence of a decision you made deliberately rather than a target you are chasing.

No target ratio appears anywhere on this page. We have not measured a defensible cross-brand distribution for ecommerce, and repeating the SaaS number would be borrowing authority we have not earned. metric to confirm.

The three ways payback shortens

Only three, and they are not equally easy.

Pay less per customer The obvious lever and the one with a floor. Below a certain CAC the volume is not there, and cutting spend to fix payback shrinks the business you were trying to grow.
Earn more on the first order Higher AOV or better margin moves payback immediately, because it lands on day one rather than in month nine. A post-purchase offer is the cheapest version of this — see post-purchase & AOV.
Bring the second order forward Not more orders eventually — the same orders sooner. Reorder timing that matches consumption compresses the curve without changing the repeat rate at all, which is why replenishment timing is a cash lever and not just a retention one.

What this will not tell you

Whether your CAC is right. Blended CAC hides enormous variation between channels. A blended $34 can be $12 from organic and $80 from paid social, and the decision you make about spend depends entirely on which.

What a marginal customer costs. CAC rises as you scale. The next $10,000 of spend does not buy customers at the average price, which is why a ratio computed on last quarter's blended figure overstates what growth will actually cost.

Anything about payback beyond your evidence. If payback lands past the horizon your inputs support, it rests on projected orders. The page says so when that happens.

Definitions

CAC: Total acquisition spend ÷ new customers acquired, in the same period.
LTV:CAC: Lifetime contribution over acquisition cost. A statement about eventual profit.
Payback period: Months until cumulative contribution covers acquisition cost. A statement about cash.
Contribution margin: Revenue after cost of goods and variable fulfilment. The correct denomination for both sides of the ratio.
Blended CAC: Acquisition cost averaged across every channel, including the free ones. Useful for a headline, dangerous for a spending decision.

Questions about LTV:CAC

How do I calculate CAC?

Total acquisition spend in a period divided by new customers acquired in the same period. Include the things people leave out — agency fees, creative production, the share of salaries doing acquisition work, platform fees — because a CAC that counts only media spend understates what a customer actually costs and quietly inflates every ratio built on it.

What is a good LTV:CAC ratio?

You will see 3:1 quoted everywhere. It comes from SaaS and it travels badly: it assumes a subscription with predictable retention and near-zero marginal cost, neither of which describes a physical-goods business carrying inventory. We do not publish a target here. What matters more for ecommerce is payback — how long your cash is tied up — because a 4:1 ratio that takes 14 months to pay back can still put you out of business.

Why does payback matter more than the ratio?

Because the ratio is a statement about eventual profit and payback is a statement about cash. If you acquire a customer today and recover the cost over 11 months, then growing faster makes your cash position worse before it makes it better. That is the mechanism behind most of the DTC brands that grew quickly and ran out of money — the ratio looked fine the whole way.

Should both sides be in revenue or in margin?

Margin, on both sides, always. Comparing a revenue-based LTV against a cash CAC is the single most common way a well-run acquisition programme quietly loses money: it inflates the ratio by roughly the inverse of your gross margin, which for a 60% margin business means a 1.8:1 reality reading as 3:1.

Where does the LTV in this calculator come from?

The same cohort model the CLV calculator uses — everyone places one order, a measured share place a second, and further orders decay at a measured or assumed ratio. It is deliberately not AOV × frequency × lifespan, which overstates lifetime value and therefore overstates what you can afford to pay for a customer.

My payback is longer than my data. Is that a problem?

It is worth knowing about. If the payback month sits beyond the horizon your inputs evidence, the answer depends on projected orders that have not happened yet. The page marks that case; treat it as a reason to lower CAC or improve the second-order rate rather than a reason to spend more.

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