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Gross Margin Impact Calculator

Quantify how gross margin changes affect gross profit LTV, payback, and LTV:CAC (before vs after).

Margin improvements can be as powerful as growth: they increase gross profit per customer and can reduce payback dramatically without changing CAC.

This calculator compares unit economics before vs after a gross margin change using a churn-based LTV shortcut.

Prefer an explanation- Read the guide.
Related definitions:gross marginltvpayback periodcacarpachurn rate
Gross margin improvements: how margin changes LTV, payback, and growth abilityUnit economics hub: CAC, LTV, payback, and runway (a practical stack)LTV:CAC ratio: how to interpret the ratio (and avoid mistakes)Unit economics dashboard: LTV, CAC, payback, and what to improve
 
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Tip: you can type commas (e.g., 10,000).

Example

Using the default inputs, the result is:
1.3 months
ARPA (monthly)
$800
Monthly churn
2%
CAC
$6,000
Current gross margin
70%
Target gross margin
80%

How to calculate

  1. Enter ARPA, churn, and CAC.
  2. Enter current and target gross margin.
  3. Review LTV, payback, and LTV:CAC improvements.

Formula

Gross profit LTV ~ (ARPAxgross margin) / churn; Payback ~ CAC / (ARPAxgross margin)
  • Churn-based LTV shortcut (constant churn).
  • ARPA constant; ignores expansion and contraction.
  • Gross margin change does not change churn (scenario test if it might).

FAQ

Should I use contribution margin instead of gross margin-
If variable costs beyond COGS materially affect profit (fees, shipping, support), contribution margin can be a better proxy. Use the definition that matches your unit economics model.
How can I improve gross margin-
Reduce COGS/infra costs, optimize support and success costs, improve pricing and packaging, and reduce refunds/returns where applicable.

Common mistakes

  • Using revenue LTV instead of gross profit LTV.
  • Mixing time units (monthly churn with annual ARPA).
  • Assuming churn stays constant when pricing changes (may affect retention).

Related calculators

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CAC Calculator
Calculate Customer Acquisition Cost (CAC) from total acquisition spend and new customers.
SaaS Metrics
Fully-loaded CAC Calculator
Calculate fully-loaded CAC by including paid spend plus sales & marketing costs (salaries, tools, and other acquisition costs).
SaaS Metrics
LTV Calculator
Estimate customer Lifetime Value (LTV) using ARPA, gross margin, and churn rate.
SaaS Metrics
LTV Sensitivity Calculator
See how gross profit LTV changes as churn and gross margin vary (simple 3x3 sensitivity).
SaaS Metrics
LTV:CAC Calculator
Compute LTV:CAC ratio and CAC payback using ARPA, gross margin, churn, and CAC.
SaaS Metrics
CAC Payback Period Calculator
Estimate how many months it takes to recover CAC (months to recover CAC) using gross profit.

Quick checks

  • Keep time units consistent (monthly vs annual) across inputs and outputs.
  • Segment by cohort/channel/plan before trusting a blended average.
  • Use the related guide to avoid common definition and denominator mismatches.