"What's your CAC and LTV?"

If this question makes you sweat, you're not alone. But you need to answer it confidently because it's one of the first things seed investors ask.

Here's how to calculate both—and what numbers investors want to see. This article is going to be very technical so favorite this to come back.

What it is: How much it costs to acquire one customer

Formula: CAC = (sales & marketing expenses) / (# of new customers)

Step 1: Add up all sales and marketing costs for a period (usually monthly or quarterly)

Include:

Step 2: Count new customers acquired in that same period

Step 3: Divide

Example:

Common Mistake: Not including salaries. If you're the CEO and spending 50% of your time on sales, include 50% of your salary (or opportunity cost).

What it is: How much revenue one customer generates over their entire relationship with you

Formula (for subscription businesses): LTV = Average revenue per customer / churn rate

How to calculate it:

Step 1: Calculate Average Revenue Per Customer (ARPC)

ARPC = Total MRR / # of customers

Step 2: Calculate Monthly Churn Rate

Churn rate = customers lost this month / customers at start of month

Step 3: Divide ARPC by Churn Rate

Example:

LTV = $500 / 0.03 = $16,667

For non-subscription businesses:

If you don't have recurring revenue, use:

LTV = average purchase value x # of repeat purchases x average customer lifespan

What investors want to see:

✅ 3:1 or higher = Healthy business, good unit economics ⚠️ 2:1 to 3:1 = Acceptable but needs improvement ❌ Below 2:1 = You're spending too much to acquire customers

Example:

Red flags investors look for:

❌ LTV:CAC below 3:1 (not sustainable) ❌ CAC payback period over 12 months (too slow) ❌ Using only 3 months of data (not enough to be meaningful) ❌ Not including fully-loaded costs in CAC

This is just as important as the ratio.

Formula: payback period = CAC / (ARPC x gross margin_

What investors want to see:

Example:

Payback = $2,000 / ($500 × 0.80) = 5 months ← Excellent

Early-stage (pre-seed) founders: You might only have 3-6 months of data. That's okay.

Be honest: "Our CAC is $X based on Y months of data, but it's early. We expect it to improve as we [specific reason: optimize ad spend, hire SDR, implement referral program]."

Investors respect honesty more than bullshit.

Your Action This Week:

Time investment: 1-2 hours Payoff: You'll answer the question investors ask most

P.S. Need help refining your unit economics before you pitch? Next Round connects founders with strong metrics to investors actively deploying capital. Submit here.