The core numbers
- Price per unit — what the customer pays.
- Variable cost per unit — materials, delivery, payment fees, direct labour.
- Contribution margin = price − variable cost.
- CAC — marketing and sales spend ÷ new customers.
- LTV = contribution margin per period × average customer lifetime in periods.
- Payback period = CAC ÷ contribution margin per period.
A worked example
A service costs $100 a month; delivering it costs $40. Contribution margin is $60. If it costs $300 to win a customer, payback is 5 months. If customers stay 20 months on average, LTV is $1,200 and LTV:CAC is 4:1 — healthy.
What to do with it
If payback is longer than your cash runway, growth will drain the bank even if the business is 'profitable' on paper. Raise prices, cut variable cost or find cheaper acquisition before spending more on growth. Try your own numbers in the free unit economics calculator.