Finance & Accounting
Definition
Unit economics describes the direct revenues and costs associated with a single unit of a business — typically one customer — and how that relationship scales.
The core unit economics metrics are Customer Acquisition Cost (CAC) and Customer Lifetime Value (LTV). CAC is what you spend to acquire one customer; LTV is how much revenue that customer generates over their relationship with your company. The LTV:CAC ratio is a fundamental measure of business health — a ratio above 3:1 is generally considered healthy for SaaS businesses. Other unit economics metrics include payback period (months to recoup CAC), gross margin per unit, and contribution margin. Investors scrutinize unit economics before any Series A or B discussion — a business with poor unit economics will struggle at scale regardless of top-line growth.
Understanding your unit economics tells you whether your business model actually works at scale. A company growing fast with poor unit economics is often just accelerating toward insolvency. A finance advisor can help you calculate, model, and improve your unit economics — and frame them in a way that resonates with investors.