The per-customer profitability of a business: the gross profit a single customer generates over their lifetime, set against what it costs to acquire and serve them.
Unit economics = LTV ÷ CAC, where LTV = (ARPU × gross margin) ÷ monthly churn rate, and CAC payback (months) = CAC ÷ (ARPU × gross margin)
A SaaS charges £40/month (ARPU), runs an 80% gross margin, loses 2% of customers per month, and spends £400 in sales and marketing per new customer.
Monthly gross profit = £40 × 0.80 = £32. Lifetime = 1 ÷ 0.02 = 50 months. LTV = £32 × 50 = £1,600. LTV:CAC = £1,600 ÷ £400 = 4:1. CAC payback = £400 ÷ £32 = 12.5 months.
Unit economics zooms the question in from the P&L to a single customer. Instead of asking whether the company is profitable, it asks whether each customer is profitable, and by how much. A SaaS business can be loss-making overall while its unit economics are excellent (it is simply investing ahead of revenue), or growing fast while every new customer quietly destroys value. Only the per-customer view tells you which.
In SaaS the analysis boils down to three numbers: customer lifetime value (LTV), customer acquisition cost (CAC), and the CAC payback period. LTV ÷ CAC measures the return on each customer; payback measures how quickly the cash comes back. Both matter. A 4:1 ratio with a 30-month payback can still strangle a bootstrapped company, because the cash returns too slowly to fund the next customer.
The most common mistake is calculating LTV on revenue instead of gross margin. A customer paying £40/month at an 80% gross margin contributes £32/month, and using the £40 figure inflates LTV (and your LTV:CAC ratio) by 25%. Payment processing fees, hosting, and support costs all belong in that margin, so a Stripe-based business should net them off before multiplying by lifetime.
Blended averages hide the truth. Mixing organic signups with paid acquisition flatters your paid CAC, and one company-wide LTV can mask a plan that never pays back, so compute unit economics per channel, plan, and cohort. Be wary of young cohorts too: with 18 months of data, 1 ÷ churn extrapolates a lifetime you have never observed, so lean on CAC payback and treat LTV as directional until cohorts mature.
Growth amplifies whatever your unit economics are. With positive unit economics, every pound spent on acquisition compounds into future gross profit; with negative unit economics, scaling just burns cash faster. Investors check LTV:CAC and CAC payback before almost anything else, and for a founder on Stripe every input (ARPU, churn, gross margin) is already sitting in billing data.
Benchmarkit's 2025 B2B SaaS Performance Metrics report puts the median new-customer CAC ratio at $2.00 of sales and marketing spend per $1.00 of new ARR, with a median subscription gross margin of 81% and median net revenue retention of 101%. The long-standing venture rule of thumb remains an LTV:CAC ratio of at least 3:1.
It is your revenue and costs measured per customer: the gross profit one customer generates over their lifetime (LTV) compared with the cost of acquiring them (CAC). Positive unit economics means each customer is worth more than they cost to win and serve.
Work out monthly gross profit per customer (ARPU × gross margin), multiply by expected lifetime (1 ÷ monthly churn rate) to get LTV, then divide by CAC. Also check CAC payback — CAC ÷ monthly gross profit per customer — to see how fast the cash comes back.
The widely used rule of thumb is at least 3:1 — £3 of lifetime gross profit for every £1 spent on acquisition. Below 1:1 you lose money on every customer; well above 5:1 may signal under-investment in growth. See our LTV:CAC ratio definition.
Because growth amplifies them. Scaling a business with positive unit economics compounds value; scaling one with negative unit economics burns cash faster. Investors use LTV:CAC and CAC payback as a first filter on whether a business model actually works.
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