Know Your Numbers Before You Scale
Calculate LTV, CAC, and payback period with realistic benchmarks. If these numbers don't work, nothing else matters.
Your Numbers
Monthly revenue per customer. SaaS median: $50-200/mo for SMB.
Revenue minus cost of goods sold. SaaS benchmark: 70-85%.
% of customers lost per month. Target: <2% SMB, <1% enterprise.
Total sales & marketing cost / new customers. Include salaries!
The Formulas
Lifetime value of a customer
Must be 3:1 or higher to be viable
Months to recover acquisition cost
Expected months before customer churns
LTV:CAC Ratio
Excellent (≥5:1)
CAC Payback
Excellent (≤12mo)
Your unit economics are strong. You have a scalable business model.
Customer LTV
$9,000
Fully-Loaded CAC
$550
Customer Lifetime
33.3 mo
Gross Profit/Customer
$8,450
Recommendations
- →Focus on growth—pour fuel on the fire
- →Consider raising prices if market allows
- →Invest in customer acquisition channels
- →Explore expansion into adjacent markets
What-If Scenarios
Reduce churn by 1%
The highest-leverage improvement you can make.
Increase ARPU by 20%
Test price increases with new customers first.
Reduce CAC by 25%
Focus on your best-performing channels.
Why Unit Economics Matter
Unit economics tell you whether your business model fundamentally works. You can have explosive growth, a beautiful product, and raving fans—but if you spend more acquiring a customer than you'll ever make from them, you don't have a business. You have a money bonfire.
The most common mistake founders make is scaling before their unit economics work. Every new customer makes the problem worse, not better. VCs see this constantly: startups raise Series A to "pour fuel on the fire" when the fire is actually burning cash, not creating value.
The rule is simple: Don't scale until LTV:CAC is at least 3:1 and payback is under 18 months. These aren't arbitrary—they account for the reality that not every customer stays as long as projected, CAC often creeps up as you scale, and you need margin for error.
Industry Benchmarks
LTV:CAC Ratio by Quality
| Ratio | Assessment |
|---|---|
| <1:1 | Losing money on every customer |
| 1-2:1 | Unsustainable—fix before scaling |
| 2-3:1 | Marginal—room for improvement |
| 3-5:1 | Healthy—ready to scale carefully |
| >5:1 | Excellent—invest aggressively in growth |
Monthly Churn by Segment
| Segment | Target Churn |
|---|---|
| Consumer / Prosumer | 3-7% monthly |
| SMB SaaS | 2-3% monthly |
| Mid-Market SaaS | 1-2% monthly |
| Enterprise SaaS | <1% monthly |
| Best-in-Class | Negative (NRR >100%) |
5 Unit Economics Mistakes That Kill Startups
Using revenue instead of gross profit for LTV
If you have 60% gross margin and use revenue, you're overstating LTV by 40%. Always use gross profit—it's the money you actually keep.
Ignoring fully-loaded CAC
CAC isn't just ad spend. Include sales salaries, commissions, marketing team costs, tools, and onboarding. Most startups undercount CAC by 2-3x.
Blending metrics across channels
Your overall LTV:CAC might look fine while one channel destroys value. Break down unit economics by channel—you might need to kill your biggest growth source.
Projecting future improvements into current metrics
"Once we reduce churn to 2%..." is not your current unit economics. Calculate with today's numbers. Future improvements are hypothetical.
Assuming churn stays constant as you scale
Early customers are often your best fit. As you scale to less ideal customers, churn typically increases. Build in margin for this.
Related Resources
Unit Economics FAQ
What is a good LTV:CAC ratio?
3:1 is the minimum for a viable business. This means you earn $3 in lifetime gross profit for every $1 spent acquiring a customer. Top SaaS companies achieve 5:1 or higher. Below 3:1, you likely can't sustain growth while remaining profitable.
What should CAC payback period be?
Under 12 months is excellent, under 18 months is acceptable. Beyond 18 months, you're tying up too much capital in customer acquisition. For VC-backed companies burning cash, long payback periods mean you'll need to raise more money before those customers become profitable.
How do I calculate fully-loaded CAC?
Add all costs related to acquiring customers: paid advertising, sales team salaries and commissions, marketing team salaries, tools and software, events, content creation, and onboarding costs. Divide by the number of new customers acquired in that period. Most founders underestimate by 2-3x.
Should I use gross margin or contribution margin?
Use gross margin for LTV calculations—it's more standardized and what investors expect. Gross margin is revenue minus the direct costs of delivering your service (hosting, support, payment processing). Don't include R&D, sales, or G&A in gross margin.
What's the difference between churn and NRR?
Churn measures customers or revenue lost. Net Revenue Retention (NRR) accounts for both churn AND expansion from existing customers. An NRR above 100% means you grow revenue from your existing customer base even without acquiring new customers. Best-in-class SaaS companies have NRR of 120%+.
My LTV:CAC is below 3:1. What should I do?
Stop scaling and fix the fundamentals. In order of impact: (1) Reduce churn—this has the biggest effect on LTV. (2) Raise prices—test with new customers first. (3) Reduce CAC—focus on your best-performing channels. (4) Improve gross margin—renegotiate costs, optimize infrastructure. Don't invest in growth until the ratio improves.