Unit Economics Deep Dive
Written by Harry Prabandham
Curated by Rubric Financial
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Core Unit Economics Metrics
- Customer Acquisition Cost (CAC) = total sales & marketing spend / number of new customers acquired in the period
- Lifetime Value (LTV) = average revenue per account (ARPA) x gross margin % / monthly churn rate (for subscription businesses)
- LTV:CAC ratio should be at least 3:1 for a healthy business; below 1:1 means you lose money on every customer acquired
- Blended CAC across all channels obscures performance, so calculate CAC by channel (paid, organic, referral) to optimize spend allocation
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About the author
Harry PrabandhamFounder & CEO
Founder and CEO of StartupCFO. MBA from Wharton, MS in Computer Science, and decades of experience building and advising venture-backed startups.
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