How is Marketing ROI calculated?
Marketing ROI = ((Revenue from marketing − Marketing cost) ÷ Marketing cost) × 100. This calculator computes gross-profit ROI, which uses gross margin instead of revenue — a more accurate measure of whether marketing is actually making you money. A healthy SMB target is 300% or higher.
What's a healthy Customer Acquisition Cost (CAC)?
A healthy CAC is typically 25–33% of customer lifetime value. The classic benchmark is a 3:1 LTV-to-CAC ratio. Below 1:1, marketing loses money on every customer. Between 1:1 and 3:1, marketing is sustainable but underperforming. Above 3:1, marketing is healthy — and above 5:1, you might be underinvesting in growth.
How is Customer Lifetime Value (LTV) calculated?
LTV = (Average purchase × Purchases per year × Tenure in years) × Gross margin %. For a service business with $500 average transaction, 3 purchases per year, 3-year tenure, and 60% margin: $500 × 3 × 3 × 0.60 = $2,700. Higher LTV justifies higher acquisition spend.
What is payback period and why does it matter?
Payback period is how many months it takes for a customer's gross profit contribution to repay the cost of acquiring them. Under 12 months is healthy for most SMBs; over 18 months creates cash-flow pressure. Long payback isn't fatal if you have capital, but it limits how fast you can scale marketing.
Why include gross margin in the calculation?
Because revenue doesn't pay for marketing — profit does. A business with $1M in revenue but 20% margins has $200K of gross profit to fund growth. The same business at 60% margins has $600K. Two businesses with identical revenue can have radically different marketing budgets available, and the LTV calculation has to reflect that.
