How to calculate unit economics
- Enter what you spent on sales and marketing in a period and how many new customers you won in that period.
- Enter average revenue per customer per month, your gross margin and monthly churn.
- See customer acquisition cost (CAC), lifetime value (LTV) based on gross profit, the LTV:CAC ratio, CAC payback and a plain-English verdict.
CAC, LTV and payback in one view
Unit economics ask a simple question: does each customer make more money than they cost to win? CAC is sales and marketing spend divided by new customers: 30,000 for 150 customers is 200 each. LTV is the gross profit a customer generates over their lifetime: 59 a month at a 78% margin is 46 of gross profit a month, and with 3% monthly churn the average customer stays about 33 months, so LTV ≈ 1,530. The LTV:CAC ratio is then about 7.7:1.
Investors look for a ratio of at least 3:1 and a CAC payback of under about 12 months for small-business customers, 18–24 for enterprise. Payback matters because LTV arrives slowly while CAC is paid upfront: a business can have great lifetime value and still run out of cash while growing. Include all acquisition costs in CAC (ads, sales salaries and commissions, tools, agencies), and measure by channel, since blended averages hide unprofitable channels. Calculations run in your browser.
What is a good LTV to CAC ratio?
3:1 or more. Below 1:1, each new customer loses money.
Should CAC include sales salaries?
Yes, for a fully loaded CAC. Marketing-only CAC is useful for comparing channels but understates the true cost.
Why use gross profit instead of revenue for LTV?
Because the cost of serving customers is real. Revenue-based LTV can make a loss-making business look healthy.