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What does a customer cost you, and what are they worth?

Two numbers decide whether marketing makes money: what it costs to win a customer (CAC) and what that customer is worth in profit over the time they stay (lifetime value, LTV). Put in your spend, new customers, order value, margin and how long customers stay to see both, the ratio between them, how many months a customer takes to pay back, and the most you can afford to pay for one.

Your CAC and lifetime value
The LTV:CAC ratio and payback months
The most you can pay per customer

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Marketing and sales spend a month

Ads, agency, tools, and the part of sales pay spent winning new customers.

New customers that month

Average order or invoice

Orders a customer places a year

Gross margin

Years a customer stays

Customer cost vs value

A customer is worth 4.8× what they cost to win, a healthy ratio. You could afford up to £240 per customer and stay at 3:1.

£150Cost to win a customer (CAC)

£720Lifetime value (gross profit)

4.8:1LTV:CAC ratio

You 4.8:1

3:15:1

The coloured band (3:1 to 5:1) is the healthy range.

In your full report

Months to earn each customer back
The most you can pay per customer

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What does your LTV to CAC ratio tell you?

The ratio compares what a customer is worth in gross profit with what it cost to win them. It is the quickest test of whether your marketing pays for itself or simply buys revenue.

Gross profit has to cover more than marketing: rent, salaries and everything else that is not tied to one sale. That is why 3:1, not 1:1, is the usual line between thin and healthy.

A very high ratio is not a prize either. It usually means you are only winning the customers who would have found you anyway, and leaving the rest to competitors who spend more.

What the calculator says at each LTV:CAC ratio
LTV:CAC ratio	Verdict	What it means
Below 1:1	Losing money	Each new customer returns less gross profit than they cost to win.
1:1 to under 3:1	Thin	Customers pay back what they cost, but little is left once overheads are paid.
3:1 to 5:1	Healthy	Room to cover overheads and still profit from each new customer.
Above 5:1	Probably under-spending	More marketing would likely win more customers at a profit.

The bands the calculator uses. Arithmetic on your own figures, not a benchmark for your sector.

How do you calculate CAC and LTV? Worked examples

CAC is spend divided by new customers, for the same month. LTV is the average order, times orders a year, times your gross margin, times the years a customer stays.

The five examples below are run through the calculator. The same £40 CAC is a loss for a subscription box whose customers stay a year, and a thin result for a shop whose customers buy twice a year for two years. CAC on its own says very little.

Five businesses run through the calculator
Business	Inputs	CAC	Lifetime value	Ratio
Online shop	£4,000 spend, 100 customers, £60 order twice a year, 40% margin, 2 years	£40	£96	2.4:1 (thin)
Subscription box	£5,000 spend, 125 customers, £25 order 3 times a year, 30% margin, 1 year	£40	£23	0.6:1 (losing)
Cleaning company	£1,500 spend, 10 customers, £90 visit every month, 30% margin, 2 years	£150	£648	4.3:1 (healthy)
B2B retainer	£9,000 spend, 3 clients, £1,200 a month, 40% margin, 2 years	£3,000	£11,520	3.8:1 (healthy)
Yearly service contract	£2,000 spend, 20 customers, £400 once a year, 40% margin, 5 years	£100	£800	8:1 (under-spending)

Arithmetic from the calculator for the inputs shown. Illustrations, not UK averages.

How much can you afford to pay for a new customer?

Divide lifetime value by three. That is the most you can pay per customer and still keep a 3:1 ratio: £216 for the cleaning company above, £3,840 for the B2B retainer, and £32 for the online shop, which is paying £40 today.

Payback is the other half of the answer: the months of gross profit a customer takes to repay their CAC. It is 5.6 months for the cleaning company, 6.3 for the B2B retainer and 10 for the shop. The subscription box needs 21.3 months, far longer than its customers stay.

A healthy ratio with a long payback can still leave you short of cash, because you pay for the customer now and earn the profit back over months. If cash is tight, a short payback matters as much as the ratio.

Lifetime value ÷ 3 = the most to pay per customer at 3:1.
CAC ÷ monthly gross profit per customer = payback in months.
Set the ceiling per channel, so one expensive channel cannot hide inside an average.

How do you lower CAC or raise customer lifetime value?

There are four levers: spend less per customer, win more customers for the same spend, earn more per order, or keep customers longer. The last two are often the cheapest, because existing customers already trust you.

On the winning side, the website is usually the biggest lever. If twice as many visitors become customers, CAC halves without a single change to the ads.

Cut spend on searches, audiences and placements that bring no customers.
Improve the landing page so more visitors enquire or buy.
Answer every enquiry quickly; slow replies waste paid leads.
Ask happy customers for referrals and reviews, which cost little.
Email past customers with a good reason to come back.
Raise prices or margins where the value supports it.

How the tool works

Put in what you spend on marketing and sales in a month and the new customers it brings.
Add the average order, how often customers buy, your margin and how many years they stay.
See your CAC, lifetime value, the LTV:CAC ratio and the payback period.
See the most you can pay per customer and still keep a healthy 3:1 ratio.

How Scale Oxford helps

Want a lower cost per customer?

We start from your own CAC and lifetime value, not a sector average, and set the most each channel can pay per customer. Then we cut the spend that brings no customers and build the campaigns and pages that win them more cheaply.

We set up tracking so every new customer is tied to the channel that won them.
We work out a CAC ceiling for each channel from your lifetime value and margin.
We report CAC, payback and the LTV:CAC ratio each month, not just clicks and leads.

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Case study · BoConceptScale Oxford brought the cost of each online sale from Google Ads down by 43% for BoConcept. The account was counting some sales twice and missing others, so Google was bidding on the wrong numbers. We fixed the tracking before touching a single bid.↓ 43%Lower cost per sale↑ 81%Higher return on ad spend↑ 162%More revenue from Google AdsRead the case study →

Questions people ask

How do you calculate customer acquisition cost?

Add up everything spent to win customers in a period (ads, agency fees, tools, the part of sales salaries spent on new business) and divide by the new customers won in that period. £3,000 spent and 20 new customers is a CAC of £150.

How do you calculate customer lifetime value?

Multiply the average order by orders a year, by your gross margin, by the years a customer stays. A £120 order, four times a year, at 50% margin, for three years, is a lifetime value of £720 in gross profit.

What is a good LTV to CAC ratio?

About 3:1 is the usual target: a customer brings in three times what they cost to win. Below 1:1 every new customer loses money; well above 5:1 usually means you could spend more to grow faster.

Should LTV use revenue or profit?

Profit. Revenue makes the ratio look better than it is, because the cost of the goods or the work has to be paid before anything is left to cover marketing.

What is the difference between blended CAC and paid CAC?

Blended CAC divides all marketing and sales spend by all new customers, including those from referrals and word of mouth. Paid CAC divides ad spend by the customers the ads won. Blended shows whether the business is healthy; paid shows whether the ads earn their keep, and it is usually higher.

Is CAC the same as cost per lead?

No. CAC is cost per lead divided by the share of leads that become customers. If a lead costs £50 and one in four buys, the CAC is £200 before any sales time is added.

What is a good CAC payback period?

Shorter is safer, because the money spent winning a customer is tied up until it comes back. Many small businesses aim to earn it back within 12 months, and sooner if cash is tight. A payback longer than customers usually stay means each customer loses money.

How do I work out how long customers stay?

If you lose a steady share of customers each month, divide one by that share. Losing 5% of customers a month means the average customer stays 20 months, about 1.7 years. For one-off buyers, count how many come back within a year or two.

Should I work out CAC for each marketing channel?

Yes, once tracking lets you tie customers to channels. Google Ads, Meta ads, SEO and referrals rarely cost the same per customer, and an average hides the channel that is losing money. Give each channel its own ceiling from your lifetime value.

What if I do not know my gross margin?

Take the price of an average order and subtract what it costs to deliver: the goods, materials, subcontractors and the staff time spent doing the work. What is left, as a share of the price, is your margin. A rough figure is far better than leaving margin out.

Does a high LTV:CAC ratio mean I should spend more on marketing?

Often, yes. Above 5:1 you are probably leaving customers to competitors willing to pay more to win them. Raise spend in steps and watch the ratio, which usually falls as you reach colder audiences, and keep it at or above 3:1.