Metrics dashboard: CAC, LTV, churn and break-even

What you will learn

• How to calculate customer acquisition cost (CAC), churn rate and customer lifetime value (LTV) from your own records
• How to read the LTV-to-CAC ratio and the payback period
• How to express break-even as a number of active customers
• How to set up a simple monthly dashboard and which warning signs to watch

Explanation

Earlier lessons gave you single numbers: CPA for ads, funnel conversion rates, repeat purchase rates. A dashboard brings the few most important numbers onto one page, so you can see whether the business as a whole is getting healthier. Contribution margin and the break-even point were introduced in the business basics course; here you apply them to customers.

CAC (customer acquisition cost)

CAC = all sales and marketing costs in a period ÷ new customers in that period

Include ad spend, marketing tools, freelancers and paid partnerships, not only ads. CAC is therefore usually higher than the CPA shown in an ad platform, which counts only ad cost and only the orders the platform could track.

Churn rate

Monthly churn = customers lost during the month ÷ customers at the start of the month

Do not include new customers in the denominator; they were not there at the start. For one-off sales, use the repeat purchase rate from lesson 10 instead.

LTV (customer lifetime value)

LTV estimates the total contribution one customer brings over the whole relationship. A simple version for subscriptions with constant churn:

Expected lifetime (months) = 1 ÷ monthly churn

LTV = monthly price × contribution margin ratio × expected lifetime

Use contribution, not revenue; an LTV based on revenue looks larger but ignores the cost of serving the customer. With very low churn, the formula gives unrealistically long lifetimes, so cap it, for example at 36 months.

LTV-to-CAC ratio and payback period

• LTV:CAC = LTV ÷ CAC. Below 1, each new customer destroys value. A common rule of thumb in subscription businesses is to aim for about 3 or more, because LTV is only an estimate and fixed costs must also be paid.
• Payback period = CAC ÷ monthly contribution per customer. It shows how many months a new customer must stay before their acquisition cost is earned back. A long payback means you need more cash to grow.

Break-even in customers

Break-even customers = monthly fixed costs ÷ monthly contribution per customer

Fixed costs are costs that do not change with the number of customers, such as software, insurance and your own planned salary. Including a fair salary for yourself shows whether the business really supports you.

Worked example

Hypothetical example: a one-person business offers an online planning tool for €20 per month. Variable costs (hosting share, payment fees, support time) are 20%, so contribution per customer is €20 × 80% = €16 per month. Last month: 900 active customers at the start, 45 cancellations, 45 new customers. Sales and marketing costs: €3,000 ads plus €600 for a freelance copywriter. Fixed costs: €2,400 per month. VAT and income tax are excluded.

1. Churn: 45 ÷ 900 = 5%
2. Expected lifetime: 1 ÷ 0.05 = 20 months
3. LTV: €16 × 20 = €320
4. CAC: (€3,000 + €600) ÷ 45 = €80
5. LTV:CAC = €320 ÷ €80 = 4.0
6. Payback period: €80 ÷ €16 = 5 months
7. Break-even customers: €2,400 ÷ €16 = 150. With 900 customers, monthly contribution after fixed costs is 900 × €16 − €2,400 = €12,000.

A monthly dashboard row could look like this:

The warning thresholds are the owner's own choices, written down in advance. Here new customers (45) only replaced lost ones (45), so the business is not growing; the dashboard makes this visible at a glance.

Common mistake

Practice activity

Hypothetical: an online membership costs €30 per month with a 70% contribution margin ratio. Monthly churn is 7%. Last quarter, sales and marketing costs were €9,000 and 60 new members joined. Fixed costs are €4,200 per month. On paper, calculate: (a) contribution per member per month, (b) expected lifetime and LTV, (c) CAC and LTV:CAC, (d) payback period, (e) break-even members. Is the ratio comfortable?

Key takeaways

• CAC includes all sales and marketing costs; churn uses customers at the start of the period.
• LTV = monthly contribution ÷ monthly churn; use contribution, cap the lifetime, and treat it as an estimate.
• Watch LTV:CAC, payback period and break-even customers together, with warning thresholds set in advance.
• A one-page monthly dashboard shows trends that single campaign reports hide.

Next step

You have completed this course; if you also want to learn how financial markets work, continue with the course "Trading Foundations".