Business Frameworks Interactive

Unit Economics

Understand the profitability of each customer. LTV/CAC ratio determines whether growth is sustainable or burning cash.

📊 The Core Question

Is LTV > CAC?

LTV

What customer is worth

CAC

What it costs to get them

Customer Metrics

50 500

100 1000

Behavioral Inputs

5 50

10 200

3 15

📊 Unit Economics Summary

LTV / CAC

2.7x

⚠️ OK

Payback Period

2.1

months

Monthly Contribution

$70

per customer

Monthly Revenue Breakdown

Gross Revenue

$80

- Processing (3%)

-$2

- Ops Cost

-$10

Net Contribution

$68

LTV/CAC Benchmarks

Break-even

Minimum healthy

Target

Excellent

📊 Key Metrics

CAC

Marketing Spend / New Customers

Cost to acquire one customer

LTV

ARPU × Avg Lifespan

Total revenue from one customer

ARPU

Revenue / Active Users

Average revenue per user

Payback

CAC / Monthly Contribution

Months to recover CAC

R Code Equivalent

# Unit economics calculation
calculate_unit_economics <- function(cac, ltv, monthly_revenue, monthly_cost) { 
  contribution <- monthly_revenue - monthly_cost
  payback_months <- cac / contribution
  ltv_cac_ratio <- ltv / cac
  
  list(
    ltv_cac = ltv_cac_ratio,
    payback = payback_months,
    monthly_contribution = contribution,
    profitable = ltv > cac
  )
}

# Example
metrics <- calculate_unit_economics(
  cac = 150,
  ltv = 400,
  monthly_revenue = 80,
  monthly_cost = 10
)

cat(sprintf("LTV/CAC: %.1fx, Payback: %.1f months\n", 
    metrics$ltv_cac, metrics$payback))

✅ Key Takeaways

• LTV/CAC > 3x is healthy for SaaS-like businesses
• Payback period < 12 months is ideal
• Monitor both acquisition and retention

• Improve by: increasing LTV or reducing CAC
• Cohort analysis reveals true LTV
• Account for variable costs per bet