Unit Economics Calculator
Calculate LTV, LTV:CAC ratio, and payback period to evaluate the profitability of acquiring and retaining each customer.
Total marketing + sales cost ÷ new customers
Average monthly spend per active customer
SaaS typically 70–85%; ecommerce 30–50%
% of customers lost each month
What Are Unit Economics?
Unit economics describe the direct revenues and costs associated with acquiring and serving a single customer, assessed on a per-unit basis. The two most important metrics are:
- LTV (Customer Lifetime Value) — the total gross profit generated from a customer over their entire relationship with your business.
- CAC (Customer Acquisition Cost) — the total marketing and sales cost to acquire one new customer.
The ratio of LTV to CAC tells you whether your business model is fundamentally sound: are you acquiring customers at a fraction of what they're worth?
The LTV Formula
LTV = (Average Revenue Per User × Gross Margin %) ÷ Monthly Churn Rate. This formula assumes a simple average customer lifetime. For businesses with more complex customer behavior, you might use cohort-based LTV models. The simplified formula is sufficient for early-stage evaluation.
Churn rate has an outsized impact: cutting monthly churn from 10% to 5% doubles your LTV. Before increasing CAC, focus relentlessly on reducing churn.
What Is a Good LTV:CAC Ratio?
The SaaS industry standard benchmark is 3:1 or higher. Below 1:1 means you're spending more to acquire customers than they're worth — this is unsustainable regardless of growth rate. A ratio above 5:1 often means you're underinvesting in growth and should increase marketing spend.
Frequently Asked Questions
What should I include in CAC?
CAC = (Total Marketing Spend + Total Sales Costs) ÷ New Customers Acquired in the Same Period. Include all paid acquisition costs: ad spend, agency fees, sales team salaries and commissions, sales tools and CRM software, and any promotional costs specifically for new customer acquisition. Don't include costs that serve existing customers (retention/support).
Why does gross margin matter for LTV?
LTV should be based on gross profit, not revenue — because the cost to serve customers comes out of that revenue. A customer paying $100/month with 70% gross margin contributes $70/month toward covering CAC and operating expenses. Using revenue instead of gross profit overstates LTV and makes your unit economics look better than they are.
How do unit economics apply to ecommerce (not SaaS)?
For ecommerce, "churn" translates to the inverse of repeat purchase rate. If 30% of customers make a second purchase, your effective "retention rate" is 30%. For one-time purchase businesses, LTV is simply the gross profit per order minus CAC — there's no recurring component. Subscription ecommerce (meal kits, beauty boxes) uses the same LTV/CAC framework as SaaS.
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