Unit Economics — CAC, LTV & Payback Discipline

Overview

Unit economics answer one question: does one customer make or lose money, and how fast do you get the money back? Growth on broken unit economics accelerates losses. The three numbers: CAC (fully-loaded cost to acquire a customer), LTV (gross-margin contribution over the customer's life), and payback period (months to recover CAC). Cash-constrained SMBs live or die on payback, not just the LTV:CAC ratio.

The Process

1. Compute CAC fully loaded — all sales+marketing spend ÷ customers acquired (include tools, labor, not just ad spend).
2. Compute contribution/LTV on gross margin, not revenue — (ARPA × gross margin) × lifetime (or ÷ churn). Gate: LTV on revenue instead of margin overstates health — redo on margin.
3. Compute payback = CAC ÷ monthly gross-margin per customer. For cash-tight SMBs this is the binding constraint.
4. Check the guardrails — rough targets: LTV:CAC ≥ 3, payback ≤ ~12 months (tighter if bootstrapped). Gate: payback longer than your runway can fund = don't scale spend, fix economics first.
5. Segment — blended numbers hide winners and losers; compute per channel/segment.
6. Decide: scale the segments that pay back fast; fix or cut the rest.

When to Use

• Before increasing ad/sales spend
• Evaluating whether a channel is worth scaling
• Bootstrapped cash planning