Unit economics are the revenues and costs associated with a single business unit, typically a customer, transaction, or order. They answer the fundamental question: do you make money on each customer? For SaaS, unit economics include LTV, CAC, LTV:CAC ratio, payback period, and gross margin. Positive unit economics at the cohort level prove the business model works and indicate that growth will generate returns rather than multiply losses.
Unit economics answer the fundamental question: do you make money on each customer? If unit economics are negative, growth makes losses worse, not better.
Positive unit economics at the cohort level prove the business model works. Investors use them to evaluate whether pouring capital into growth will generate returns.
For SaaS: LTV, CAC, LTV:CAC ratio, payback period, and gross margin.
For marketplaces: GMV per transaction, take rate, contribution margin per order, and CAC payback.
For e-commerce: AOV, gross margin per order, shipping/fulfillment cost, return rate, and CAC.
CAC $500. ARPU $80/mo. Gross margin 80%. Monthly gross profit per customer: $64. Payback: $500/$64 = 7.8 months. LTV (at 3% monthly churn): $64/0.03 = $2,133. LTV:CAC = 4.3:1.
These numbers tell investors: the model works, payback is fast, and there is room to invest more in acquisition.
Computing unit economics on too few customers or too short a time period.
Not separating unit economics by customer segment. Enterprise and SMB unit economics are usually very different.
Using projections instead of actuals. Investors want to see measured unit economics, not modeled ones.
Financials slide: clean summary table of CAC, LTV, LTV:CAC, payback, and gross margin. Segment if you serve multiple ICPs.
Unit economics: CAC $500, LTV $2.1k, LTV:CAC 4.3x, payback 7.8 mo.
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