What the calculator measures
Every company that spends money to win customers is making an investment, whether or not it is treated as one. This calculator puts that investment in the terms a finance team would use: what it costs, what it returns, and how long it takes to come back.
- Cost of a new customer is everything spent to win new business, divided by the customers who paid for the first time. It is usually far higher than the cost per lead in a marketing report. How to calculate it from your books.
- Lifetime value is the gross margin a typical customer produces over the time they stay. Customer lifetime is estimated as one divided by the share of customers lost each year. How to calculate it for a service firm.
- Value to cost ratio compares the two. Above one, a customer returns more than they cost over their lifetime. Around three or more leaves room for error and for growth.
- Payback is the number of months of margin needed to recover the cost of winning a customer. It tells you how much growth your cash flow can fund.
How to read the result
The reading at the top of the result falls into one of three bands. Growth is paying for itself when a customer is worth at least three times their cost and the cost returns within a year. Growth pays, but with little room when the ratio is lower or payback is slow. Each new customer costs more than it returns when customers typically leave before paying back their cost.
The thresholds are rules of thumb, not standards. A company with strong cash reserves can grow sensibly with a longer payback; a company with tight cash flow may need a shorter one. What the calculator cannot tell you is why the figures look the way they do. A weak result can come from expensive acquisition, from inquiries lost before they become customers, from thin margins, or from customers who leave too early. Each points to a different part of the growth system, and a different fix.
Where to find each figure
- Total spent to win new business: the general ledger and vendor invoices, plus an honest estimate of the time your team spends on prospects.
- New customers won: your invoicing or accounting system, filtered to customers with a first invoice in the period.
- Annual revenue per customer: revenue from active customers over twelve months, divided by the number of customers who paid.
- Gross margin: your accountant or management accounts, by service line if possible.
- Customers lost per year: compare the customers who paid last year with those who paid this year.
If any of these took a guess, the guess deserves attention before the result does. A precise answer built on an estimate can be more misleading than no answer at all. Reconstructing these figures from a company's own records, with every assumption written out, is the first step in how we work.
Common questions
What is a good LTV to CAC ratio?
A ratio of around three to one is a common rule of thumb, meaning a customer is worth about three times what it cost to win them. It is a reference point, not a standard. A company with strong cash reserves can accept a lower ratio while it grows; a company with tight cash flow may need a higher one.
What is a good payback period?
Shorter is safer, because the business recovers its cash sooner and can reinvest it. Recovering the cost within about a year is a reasonable reference for many service businesses. Longer payback periods can still be profitable, but they need more cash to fund growth.
Why does the calculator use gross margin instead of revenue?
Because revenue includes the cost of delivering the work. Using margin shows what a customer actually contributes, and lets you compare that contribution directly with what you spent to win them.
Is the information I enter stored anywhere?
No. The calculation runs in your browser. The figures you enter are not sent to Markspeed or anyone else.