Unit Economics Calculator
Analyze the core profitability of your business model by calculating Customer Lifetime Value (LTV), Customer Acquisition Cost (CAC), LTV:CAC Ratio, Payback Period, and Contribution Margin all in one place.
Inputs
Provide the necessary data to calculate unit economics.
Calculated Unit Economics
Based on the inputs provided.
- Customer Acquisition Cost (CAC)
- $1,000.00
- Customer Lifetime Value (LTV)
- $1,600.00
- LTV : CAC Ratio
- 1.6 : 1
- Aim for 3:1+
- Payback Period
- 12.5 months
- Aim for < 12 months
- Contribution Margin
- $80.00
- per customer / month
Understanding Unit Economics
Unit economics refers to the direct revenues and costs associated with a specific business model on a per-unit basis. For subscription businesses (like SaaS), the "unit" is typically a customer. Analyzing unit economics helps determine the long-term viability and profitability of acquiring and serving customers.
Key Metrics Calculated:
- Customer Acquisition Cost (CAC): The average cost to acquire one new customer. (Total Sales & Marketing Spend / New Customers Acquired)
- Gross Margin (%): The percentage of revenue left after accounting for the Cost of Goods Sold (COGS) or cost of service.
- Contribution Margin (per customer/month): The profit generated by a customer each month after accounting for variable costs (COGS). (ARPA * Gross Margin %)
- Customer Lifetime Value (LTV): The total *profit* expected from a single customer over their entire relationship with the company. (Average Contribution Margin per Customer / Customer Churn Rate)
- LTV:CAC Ratio: Compares the lifetime value of a customer to the cost of acquiring them. A key indicator of profitability and marketing ROI.
- Payback Period (Months): The time it takes (in months) to recoup the CAC through the customer's contribution margin. (CAC / Contribution Margin per Customer per month)
Why Are Unit Economics Important?
- Profitability Assessment: Determines if your business model is fundamentally profitable at the customer level.
- Scalability Analysis: Healthy unit economics (especially LTV:CAC > 3) suggest the business can scale profitably.
- Investment Decisions: Investors heavily scrutinize unit economics to assess business health and potential return.
- Operational Efficiency: Highlights areas for improvement, such as reducing CAC, increasing ARPA, improving retention (reducing churn), or optimizing gross margin.
- Cash Flow Insights: The Payback Period directly impacts how quickly acquisition costs are recovered, influencing cash flow needs.
Generally, for SaaS businesses, a LTV:CAC ratio of 3:1 or higher and a Payback Period of 12 months or less are considered healthy benchmarks, though this can vary by industry and stage.
Use this comprehensive calculator to get a clear picture of your company's unit economics based on your inputs.