Definition
Unit economics evaluate profitability and cash efficiency at the level of a unit (customer/account/order). Common unit metrics are CAC, LTV, and payback.
Example
A simple unit economics stack is: compute CAC, estimate LTV, sanity-check LTV:CAC, then confirm cash feasibility with CAC payback and runway.
How to use it
- Pick a unit (customer/account) and keep definitions consistent.
- Use gross profit (not revenue) when comparing to CAC.
- Segment by channel/plan to avoid blended averages.
Common mistakes
- Mixing fully-loaded CAC with revenue-only LTV (definition mismatch).
- Using blended averages that hide unprofitable segments.
Why this matters
This term matters because small changes compound in SaaS metrics. Use consistent definitions by cohort and segment so you can diagnose retention, payback, and growth quality.
Practical checklist
- Write a 1-line definition for "Unit Economics" that your team will use consistently.
- Keep the time window consistent (weekly/monthly/quarterly) when comparing trends.
- Segment results (channel/plan/cohort) before drawing big conclusions from blended averages.
- Use a calculator that references this term (e.g., Unit Economics Calculator) to sanity-check assumptions.
- Read the related guide (e.g., Unit economics: CAC, payback, LTV, and LTV:CAC (how to model them)) for context and common pitfalls.
Where to use this on MetricKit
Calculators
- Unit Economics Calculator: Model CAC, payback, LTV, and LTV:CAC together from ARPA, gross margin, and churn.
- Unit Economics Dashboard Calculator: Compute a unit economics snapshot: gross profit LTV, CAC payback, LTV:CAC, and break-even targets from a few inputs.
- LTV:CAC Calculator: Compute LTV:CAC ratio and CAC payback using ARPA, gross margin, churn, and CAC.
- CAC Payback Period Calculator: Estimate how many months it takes to recover CAC (months to recover CAC) using gross profit.
Guides
- Unit economics: CAC, payback, LTV, and LTV:CAC (how to model them): A practical unit economics guide: consistent definitions for CAC and LTV, how to calculate CAC payback period, and how to interpret LTV:CAC.
- Unit economics hub: CAC, LTV, payback, and runway (a practical stack): A practical hub for unit economics: CAC, fully-loaded CAC, LTV, payback, margin impacts, burn multiple, and runway planning.
- LTV:CAC ratio: how to interpret the ratio (and avoid mistakes): Learn what LTV:CAC tells you, rough benchmarks, and how churn and payback change what 'good' looks like.
- Unit economics dashboard: LTV, CAC, payback, and what to improve: A practical guide to unit economics: how to compute gross profit LTV, CAC payback, and LTV:CAC (and what levers improve them).