UNIT ECONOMICS: KNOW YOUR NUMBERS
Scaling a business with broken unit economics is like pouring water into a leaky bucket faster. Master these metrics before you spend a dollar on growth.
target LTV:CAC
payback period
best-in-class NRR
excellent burn multiple
8 UNIT ECONOMICS METRICS
1.Customer Lifetime Value (LTV)
LTV = Average Revenue Per User x Gross Margin x Average Customer Lifespan. For subscription businesses: ARPU x Gross Margin / Monthly Churn Rate. If LTV is $300 and CAC is $100, you have a sustainable business. Track LTV by cohort to spot trends.
2.Contribution Margin
Revenue minus all variable costs (COGS, payment processing, hosting per user, support per ticket). If your $50/mo SaaS costs $15/mo to serve each customer, contribution margin is $35 (70%). This must be positive before you scale.
3.CAC Payback Period
Months to recover customer acquisition cost from contribution margin. $300 CAC with $35/mo contribution margin = 8.6 months payback. Under 12 months is healthy for SaaS, under 3 months for e-commerce. Longer payback requires more working capital.
4.Gross Margin Analysis
Revenue minus cost of goods sold divided by revenue. Software: 70-85% gross margin. E-commerce: 30-50%. Services: 40-60%. Low gross margin businesses need massive volume to profit. High gross margin businesses can afford higher CAC.
5.Cohort Retention Analysis
Track revenue from each monthly cohort over time. Healthy businesses show flattening retention curves (customers who survive month 3 stay for years). Declining cohort curves mean your product has a retention problem that scaling will amplify.
6.Break-Even Analysis
Fixed costs / contribution margin per unit = units needed to break even. If fixed costs are $50K/month and contribution margin is $35/customer, you need 1,429 paying customers to break even. Know this number before spending on growth.
7.Net Revenue Retention (NRR)
Revenue from existing customers this period vs last period, including expansion, contraction, and churn. NRR above 100% means you grow even without new customers. Best-in-class SaaS: 120-140% NRR. Below 90% signals serious retention issues.
8.Burn Multiple
Net burn / net new ARR. If you burn $500K to add $250K in ARR, your burn multiple is 2x. Under 1x is excellent (adding more ARR than you burn). Over 3x means you're buying growth inefficiently. Investors scrutinize this metric heavily.
KEEP READING
UNIT ECONOMICS DASHBOARD
Spreadsheet templates for tracking LTV, CAC, NRR, and cohort analysis.
GET THE DASHBOARD →SHARE & EARN REWARDS
Share with friends and unlock exclusive bonuses. The more you share, the more you earn.
Disclosure: You may earn commissions on purchases made through your referral link.
KEEP READING
EARNINGS DISCLAIMER (Updated April 2026): The information provided on this website and in our products is for educational purposes only. Results shown or referenced are not typical and individual results will vary significantly. Most customers earn $0–$500/month. Results depend on effort, experience, and market conditions. There is no guarantee that you will earn any money using the techniques, ideas, or products we provide. Any earnings or income statements are estimates of what we believe is possible based on our experience — they are not promises, projections, or guarantees of actual earnings. Your results depend entirely on your own effort, experience, business acumen, and market conditions. This is not a "get rich quick" scheme and we do not guarantee financial success. By purchasing our products, you accept that you are solely responsible for your own results. See our full Earnings Disclaimer and Terms of Service.
256-bit SSL · Stripe Secured · 3,400+ entrepreneurs in 25 countries
4.9
628 reviews
BUILT WITH INDUSTRY-LEADING TOOLS