Unit Economics Calculator

Does your business actually make money on every customer? Measure the LTV (Lifetime Value) against your CAC (Customer Acquisition Cost).

The "Unit" Inputs

Revenue & Value

COGS, shipping, transaction fees.

Acquisition Costs
LTV to CAC Ratio
5.4x
Customer LTV $270.00
CAC $50.00
Contribution Margin $90.00

Business Scalability

Input your data to see if your business model is scalable.

How to Audit Your Business Units

01

Calculate Contribution Margin

Subtract your variable costs (COGS) from your Average Order Value. This tells you how much cash each sale generates to pay for marketing and fixed costs.

02

Determine Customer LTV

Multiply your Contribution Margin by the frequency of purchases. This is the Total Lifetime Value a single customer brings to your business.

03

Measure CAC Efficiency

Divide your total marketing spend by the number of new customers. If your LTV is 3x higher than your CAC, you have a healthy, scalable business.

Understanding Unit Economics for Scale

Unit Economics are the direct revenues and costs associated with a particular business model, and are expressed on a per-unit basis. In the world of modern startups, the "unit" is almost always a single customer.

LTV/CAC Ratio: The Magic Number

The relationship between what you pay to get a customer (CAC) and what that customer pays you over time (LTV) determines if your business will thrive or die.

  • Ratio < 1.0x: You are losing money on every customer. Scaling will lead to bankruptcy faster.
  • Ratio 1.0x - 2.0x: You are barely breaking even. Fixed costs will likely eat your remaining profit.
  • Ratio 3.0x+: This is the industry standard for a healthy startup. You can afford to spend more on growth.

Why "Frequency" is Your Secret Weapon

If your acquisition cost (CAC) is high, the only way to win is to increase Purchase Frequency. Moving a customer from 1 purchase to 2 purchases doubles your LTV while your CAC stays exactly the same. Retention is the most profitable growth strategy.

Unit Economics FAQ

1. What exactly is a "Unit" in Unit Economics?
In most business models, the "unit" is a single customer. However, for a manufacturer, it might be one physical product sold. For a ride-sharing app, it might be a single ride.
2. How do I calculate CAC?
Customer Acquisition Cost (CAC) is calculated by dividing all the costs spent on acquiring more customers (marketing expenses) by the number of customers acquired in the period the money was spent.
3. What does LTV stand for?
LTV stands for Lifetime Value. It is the total net profit you expect to earn from a customer throughout their entire relationship with your business.
4. What is the "Contribution Margin"?
Contribution margin is the selling price per unit minus the variable cost per unit. It represents the "fuel" available to cover fixed costs and marketing.
5. Why is a 3:1 LTV/CAC ratio considered good?
A 3:1 ratio leaves enough room to cover fixed overheads (rent, salaries), pay for the CAC of customers who churn, and still leave a healthy net profit.
6. How can I improve my unit economics?
You can improve it by: 1) Increasing prices, 2) Lowering COGS, 3) Reducing churn (increasing frequency), or 4) Optimizing marketing to lower CAC.
7. Does Unit Economics include my rent and office salaries?
No. Unit economics typically focuses on Variable Costs. Fixed costs (rent, admin salaries) are analyzed separately in your Break-Even analysis.
8. What is Churn Rate and how does it affect LTV?
Churn is the rate at which customers stop doing business with you. High churn directly kills LTV because it reduces the "Frequency" of purchases, making it harder to recoup your CAC.