Unit Economics

The two foundational ratios are LTV:CAC (target 3:1 or higher) and CAC payback period (target under 12 months for SaaS). Healthy unit economics are the prerequisite for sustainable scale.

Unit economics describe the profitability of a single customer. The two foundational ratios are LTV:CAC (lifetime value divided by acquisition cost; healthy is 3:1 or higher) and CAC payback period (months to recover acquisition cost from gross-margin contribution; healthy is under 12 months for SaaS).

Drivers of LTV are gross margin, retention and expansion. Drivers of CAC are sales and marketing efficiency, conversion rates and ASP. Healthy unit economics are the prerequisite for sustainable scale; weak unit economics cannot be solved by raising more money or hiring more reps. Every revenue leader inherits a unit economic structure; the job is to understand it, name the binding constraint, and improve it materially over the next twelve to eighteen months.