Unit Economics
Stress-test strategy fit with the math investors and operators actually use.
Metrics in this guide
Each card defines one metric — what it measures, how to calculate it, and a typical benchmark.
- Strategy fit
CAC
Customer acquisition cost
Fully loaded cost to win one new paying customer or account.
- Formula
- (Sales + marketing + onboarding) ÷ new customers in period
- Typical benchmark
- SaaS: payback ≤12–18 mo often cited; varies by ACV and motion.
- Strategy fit
LTV
Lifetime value
Gross profit expected from a customer over the relationship.
- Formula
- ARPA × gross margin % × avg customer lifetime (months)
- Typical benchmark
- LTV:CAC ≥3:1 is a common SaaS sanity check (segment-specific).
- Strategy fit
LTV:CAC
LTV to CAC ratio
How much value you earn per dollar spent acquiring a customer.
- Formula
- LTV ÷ CAC
- Typical benchmark
- ≥3:1 healthy for many SaaS; <1:1 unsustainable at scale.
- Execution
Payback
CAC payback period
Months until gross profit from a customer recovers CAC.
- Formula
- CAC ÷ (monthly gross profit per customer)
- Typical benchmark
- Enterprise often 18–24 mo; SMB/PLG often target ≤12 mo.
- Strategy fit
GM%
Gross margin
Revenue minus direct cost of delivery, as a percentage of revenue.
- Formula
- (Revenue − COGS) ÷ Revenue × 100
- Typical benchmark
- Software 70–85%+; services 40–60% depending on labour mix.
Unit economics answer whether each unit of business (customer, account, site, or engagement) creates more value than it costs to acquire and serve. Core metrics:
- CAC — fully loaded cost to win one new unit.
- LTV — gross profit expected over the relationship (not revenue alone).
- LTV:CAC — value earned per acquisition dollar.
- Payback period — months until gross profit recovers CAC.
- Gross margin — revenue minus direct delivery cost.
The same framework adapts to SaaS seats, enterprise modules, consulting projects, and grant-funded programmes — only the unit and time horizon change.
Strategy decks ignore math at scale. Boards and investors ask whether growth is efficient or merely expensive. Unit economics expose misaligned GTM (high CAC for low-LTV segments), pricing that leaves no margin for support, and channels that look busy but never pay back before churn.
Pair unit economics with your north star so you do not optimise efficiency metrics that destroy customer value.
Before fundraising, pricing changes, channel expansion, hiring sales, or approving a growth budget. Refresh after PMF shifts, when CAC rises in a new segment, or when services mix changes (e.g. adding a diagnostic SKU).
- Define the unit — customer, account, plant, or site; state B2B vs B2C norms.
- Calculate fully loaded CAC — marketing, sales salaries, commissions, onboarding, partner fees.
- Model LTV — ARPA × gross margin % × expected lifetime; include churn and expansion assumptions.
- Compute LTV:CAC and payback months — use the same cohort definition for both sides.
- Layer gross margin by product line or service type if blended.
- Run sensitivity — churn +10 pts, CAC +20%, sales cycle +1 quarter.
- Set go / iterate / stop thresholds — aligned to runway and segment strategy.
- Assumptions are explicit, dated, and owned by finance or ops.
- CAC and LTV use the same cohort and margin definition.
- Payback fits inside cash runway and fundraising narrative.
- Services and NGOs use cost per outcome, not SaaS benchmarks blindly.
- Vanity LTV — infinite retention or ignoring support cost to serve.
- CAC excludes salaries — especially founder-led sales.
- Blended metrics hide segments — enterprise subsidises SMB losses in one line.
- Comparing to SaaS benchmarks for services or grant models without translation.
Northvale Systems. CAC €18K (enterprise sales cycle); LTV €240K (5yr module + attach services); LTV:CAC 13:1; payback 14 months; gross margin 72% on software. Read: healthy for suite upsell if expansion holds. Gap: partner rebates excluded from CAC — normalise before board review.
PulseWell. CAC £6.2K; LTV £19K (3yr seats, 81% GM); LTV:CAC 3.1:1; payback 11 months. Read: viable at seed if NRR ≥110%; watch CAC inflation leaving design-partner motion. Model scenarios in /finance.
Harbor Consulting. CAC £2.1K per won client; LTV £48K (workshops + retainer); payback after second engagement; project GM 58%. Read: diagnostic SKU should lower CAC — segment reporting post-launch.
Clearwater Initiative. Cost per sustained site $420/yr; 3yr grant value ~$1.1K/site; donor-visible payback ~18 months via reduced downtime days. Frame as cost per outcome, not LTV:CAC from SaaS playbooks.
Use this guide for definitions and benchmarks; run /finance for modelled unit economics tied to your pack. Align headline value metric with /northstar so efficiency and outcome metrics do not fight.
Related techniques
Sources & further reading
- Skok, D. (2010). Startup Killer: the cost of customer acquisition. For Entrepreneurs.