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Unit Economics (CAC:LTV)

L3Business analysisFinancequantitativeStages 1 to 3

Reference model

Unit economics: CAC and LTVA chart of one customer’s cumulative gross profit over time. It starts below zero by the customer acquisition cost, crosses zero at the payback point, and ends at the customer lifetime value when the customer leaves. Below, the formulas for LTV, CAC and payback, and the rules of thumb: LTV at least three times CAC and payback within about twelve months.CUMULATIVE GROSS PROFIT PER CUSTOMERTime with the customerStarts at −CAC: the cost of winning the customerPaybackCAC earned backLTV: all the gross profitover the customer’s lifeCustomer leaves (churn)LTV = revenue × gross margin ÷ churnCAC = sales and marketing spend ÷ new customersPayback = CAC ÷ monthly gross profit per customerGross margin is revenue less the direct cost of delivering it.Rules of thumbLTV at least 3 × CACPayback within about 12 monthsLTV under CAC: every customer loses money.

Each customer costs money to win (CAC) and then earns gross profit month by month; the point where it has paid back the CAC is the payback; its total lifetime profit is the LTV.

About this model

Asks the one question that decides whether a business can scale: what does it cost to win a customer, and what is that customer worth? Customer lifetime value (LTV) against customer acquisition cost (CAC), and the months to earn the acquisition cost back, show whether growth creates value or destroys it.

Venture-investor practice popularised by David Skok (“SaaS Metrics 2.0”): customer lifetime value against customer acquisition cost · 2009–2013

How to read it

  • CAC is what you spend on sales and marketing in a period divided by the new customers it won. LTV is the gross profit a customer earns over their life: revenue × gross margin ÷ the share of customers lost each year (churn).
  • A healthy business has an LTV at least three times its CAC, and earns its CAC back within about twelve months. A ratio under 1 means every new customer loses money.
  • Long industrial sales cycles can be healthy with a longer payback, but only if the customer stays long enough for the ratio to hold.

What this does

Checks whether the model is fundamentally scalable — what it costs to win a customer against what they're worth over time.

When to use it

Startup through Early Growth, before pouring capital into scaling a broken ratio.

What happens next

A healthy ratio greenlights the Financial Model's growth assumptions.

Golden thread

Builds on ←

    A starting point: it needs no earlier tool.

    Feeds into →

    • financial

    Framework library: Financial (layer L3), lifecycle stages 1 to 3.

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    Hand-built by Eccellere and reviewed by Eccellere on 02/11/2026. Guidance, not advice: apply your own judgement.