Unit economics determine whether your business is fundamentally viable. The two key metrics: CAC (Customer Acquisition Cost) = total sales & marketing spend / new customers acquired, and LTV (Lifetime Value) = ARPU × gross margin × customer lifetime. The golden rule: LTV > 3× CAC.
CAC
CAC = Total S&M Spend / New Customers Acquired
LTV
LTV = ARPU × Gross Margin % × Average Customer Lifetime (months or years)
LTV:CAC Ratio
LTV:CAC = LTV / CAC
> 3:1 = healthy. > 5:1 = very healthy (or under-investing in growth). < 3:1 = unsustainable.
Key Takeaways
- LTV:CAC > 3:1 = healthy unit economics.
- CAC payback < 12 months = good capital efficiency.
- Reducing churn has massive impact on LTV.
- Unit economics must work BEFORE you scale.