The Only Math That Matters: LTV and CAC for Solo Founders
Type: media · article
Stage: Stage 5: Payment Proof
Difficulty: beginner
Two numbers determine whether your business can work: Lifetime Value (LTV = ARPU ÷ monthly churn rate) and Customer Acquisition Cost. The 3:1 LTV:CAC ratio is the minimum threshold for healthy unit economics. If you track nothing else, track this: how many customers who started in month one are still paying in month two.
Overview
Most founders at Stage 5 are drowning in the wrong numbers. They track total signups, page views, email opens, and waitlist size. None of these tell you whether your business can work. Two numbers do: Lifetime Value and Customer Acquisition Cost. If you don't know these, you don't know whether growth is making you richer or just making your losses bigger faster.
What LTV actually is
Lifetime Value (LTV) is the total revenue one average customer generates before they cancel. The simplest calculation is ARPU divided by your monthly churn rate. If you charge $49/month and 5% of customers cancel each month, your average customer stays for 20 months. LTV = $49 × 20 = $980.
Always use gross margin in a more advanced version of this calculation. If your gross margin is 80%, your gross profit LTV is $784. This is the number that tells you how much profit each customer actually generates — not just how much they pay.
What CAC actually is
Customer Acquisition Cost (CAC) is everything you spent to acquire one new customer. Not just ad spend. Every dollar: your time doing outreach, tools you used, any content you paid to produce. At Stage 5, your CAC is often close to zero because you're doing direct outreach and community participation. That's fine. Write it down anyway. CAC will rise as you scale, and founders who never measured it at zero are always surprised by how fast it climbs.
The ratio that matters
LTV divided by CAC. The benchmark: 3:1 or higher for a healthy SaaS. Below 3:1 means you're spending close to what customers are worth — there's no room for error, marketing investment, or product improvement. Above 5:1 suggests you could invest more aggressively in acquisition without breaking the economics.
At Stage 5, your LTV:CAC ratio is probably very high — because your CAC is low. Don't celebrate yet. The question is whether it stays high when you start spending on growth. That's the calculation to run before you commit to any channel.
The one number to start tracking today
If you track nothing else, track this: how many customers who started in month one are still paying in month two? That single retention rate tells you more about your unit economics than any other number at Stage 5.