Unit economics is simple: how much does it cost to acquire a customer? How much money do they generate in their lifetime? But calculating it right is complex.
CAC (Cost of Acquisition)
CAC isn't just ads. It includes: sales salaries, tools, overhead, content, events. Many companies only count ad spend. That's wrong.
Correct example: You spend $50K/month on everything related to acquisition (ads, salaries, tools). You acquire 100 customers. CAC = $500 per customer.
LTV (Lifetime Value)
LTV isn't revenue. It's revenue minus the cost to serve. A customer paying $100/month for 24 months = $2,400 revenue. But if it costs $800 to serve them (servers, support, payment processing), real LTV is $1,600.
Many companies say "our LTV is $10K". Sounds good. But if COGS is 40% (servers, etc.) and CAC is $5K, you're actually making $6K per customer. With corporate overhead, you're breaking even or losing money.
Payback period
How many months to recover the CAC. If CAC is $500 and the customer pays $100/month, payback is 5 months. If payback is more than 12 months, your business isn't viable. You won't last.
The real formula
Sustainable unit economics:
Payback under 12 months + Gross Margin above 60% + LTV greater than 5x CAC
If your business doesn't meet these 3 conditions, you need to pivot. Can be: higher price, lower COGS, lower churn, or cheaper acquisition.