Unit Economics Calculator
Calculate key unit economics: contribution margin, LTV, CAC, and LTV:CAC ratio. Unit economics reveal whether your business model is fundamentally profitable at the transaction level.
📊 Business💼 LTV:CAC = Customer LTV / Customer Acquisition Cost
Average revenue per customer per month ($)
Gross margin (%)
Monthly churn rate (%)
Customer acquisition cost ($)
Please enter valid values.
Formula & Reference
| Variable | Formula | Units |
|---|---|---|
| Unit Economics Calculator | LTV:CAC = Customer LTV / Customer Acquisition Cost | ratio |
Step-by-Step Examples
Example 1
SaaS Tool
$100/month, 65% margin, 2% churn, $500 CAC.
- Monthly GP: $65
- Avg lifetime: 50 months
- LTV: $65*50 = $3,250
- LTV:CAC = $3,250/$500 = 6.5:1 - healthy!
✓ LTV:CAC 6.5:1 - healthy unit economics
Example 2
Consumer App
$15/month, 70% margin, 8% churn, $30 CAC.
- Monthly GP: $10.50
- Avg lifetime: 12.5 months
- LTV: $131
- LTV:CAC = 131/30 = 4.4:1 - good
✓ LTV:CAC 4.4:1 - good
Example 3
Poor Unit Economics
$50/month, 40% margin, 15% churn, $400 CAC.
- Monthly GP: $20
- Avg lifetime: 6.7 months
- LTV: $133
- LTV:CAC = 0.33:1 - deeply negative!
- Losing money on every customer
✓ LTV:CAC 0.33:1 - fundamentally broken
Real-World Applications
Startup Founders
Unit economics reveal whether your business model can be profitably scaled.
VCs
LTV:CAC is the primary benchmark for evaluating subscription business viability.
Growth Teams
Optimize unit economics before scaling - broken unit economics get worse at scale.
Financial Models
Build financial projections on unit economics, not just revenue projections.
Common Mistakes to Avoid
⚠️
Not accounting for gross margin in LTV
LTV calculated on revenue, not gross margin, overstates true customer value. LTV must be based on contribution margin after COGS.
⚠️
Using average instead of cohort LTV
Average churn from a mixed cohort can hide that newer customers churn faster than older ones. Cohort analysis reveals this important pattern.
⚠️
Treating 3:1 LTV:CAC as sufficient
3:1 is the minimum benchmark. 5:1+ is healthy for a growing SaaS. Below 3:1 means customer acquisition is consuming too much of customer value.
Frequently Asked Questions
What is a good LTV:CAC ratio? ▾
3:1 is the commonly cited minimum for viable SaaS. 5:1 is healthy. Below 1:1 means you're losing money on each customer acquired. Above 10:1 may indicate under-investment in growth.
How does churn rate affect LTV? ▾
Dramatically. At 2% monthly churn, avg lifetime = 50 months. At 5%, avg lifetime = 20 months. A 3% difference in churn cuts LTV by 60%.
What is contribution margin? ▾
Revenue minus variable costs (COGS, direct services). Contribution margin per customer is the right numerator for LTV calculation.
How do I improve LTV:CAC? ▾
Reduce churn (improves LTV), increase ARPU via upsells (improves LTV), improve gross margin (improves LTV), or optimize marketing to reduce CAC.
Should I improve LTV or reduce CAC? ▾
Both matter, but reducing churn (the biggest LTV driver) is usually higher leverage than reducing CAC, since retention improvements compound across the entire customer base.