What are Unit Economics?
Unit economics analyze profitability at the smallest measurable level—typically per customer or transaction. They reveal whether your business model is fundamentally sound.
Key Metrics
Customer Acquisition Cost (CAC)
Total cost to acquire one customer: CAC = Marketing + Sales Costs / New Customers
Lifetime Value (LTV)
Total revenue from a customer over their lifetime: LTV = Average Revenue × Customer Lifespan
LTV:CAC Ratio
The gold standard metric:
- 3:1 or higher: Healthy business
- 1:1: Breaking even
- Below 1:1: Losing money per customer
Why It Matters
- Validates business model viability
- Guides marketing spend decisions
- Helps with fundraising
- Predicts profitability at scale
Improving Unit Economics
- Reduce CAC through organic channels
- Increase LTV via upsells
- Improve retention rates
- Optimize pricing