📊Understand Unit Economics: LTV, CAC, Contribution Margin
Build LTV, CAC, contribution margin, and payback period from raw subscription data — then ship a one-page memo you can hand to an investor without flinching.
Phase 1What a 'Unit' Actually Is — and Why Contribution Margin Comes First
Define the unit and find its contribution margin first.
Your 'unit' is not your customer — it's the thing that repeats
7 minYour 'unit' is not your customer — it's the thing that repeats
Gross margin lies; contribution margin tells the truth
8 minGross margin lies; contribution margin tells the truth
Your churn number has two definitions, and they disagree
7 minYour churn number has two definitions, and they disagree
LTV, CAC, and payback are three angles on one question
6 minLTV, CAC, and payback are three angles on one question
Phase 2Building the Numbers in a Real Spreadsheet
Compute LTV, CAC, LTV:CAC, and payback in a spreadsheet.
ARPU is the anchor — compute it from billing, not intuition
8 minARPU is the anchor — compute it from billing, not intuition
The simplest honest LTV formula beats every clever one
8 minThe simplest honest LTV formula beats every clever one
Blended CAC hides your best and worst channels
8 minBlended CAC hides your best and worst channels
3:1 is folklore — bake it, don't chant it
7 min3:1 is folklore — bake it, don't chant it
Payback is the cash truth that LTV:CAC hides
7 minPayback is the cash truth that LTV:CAC hides
Phase 3Connecting Unit Economics to Funnels and Cohorts
Map unit economics to AARRR funnels and cohort retention.
Your unit economics die or thrive inside the AARRR funnel
7 minYour unit economics die or thrive inside the AARRR funnel
The cohort curve shows you the real LTV; the average hides it
7 minThe cohort curve shows you the real LTV; the average hides it
Different channels have different LTVs — don't blend them
8 minDifferent channels have different LTVs — don't blend them
Net dollar retention above 100% quietly rewrites the LTV formula
8 minNet dollar retention above 100% quietly rewrites the LTV formula
Phase 4Writing Your One-Page Unit Economics Memo
Draft a one-page unit economics memo for your product.
Ship the one-page unit economics memo for your product
8 minShip the one-page unit economics memo for your product
Frequently asked questions
- What is the difference between LTV and contribution margin?
- This is covered in the “Understand Unit Economics: LTV, CAC, Contribution Margin” learning path. Start with daily 5-minute micro-lessons that build from fundamentals to hands-on application.
- How do you calculate CAC when marketing spend is shared across channels?
- This is covered in the “Understand Unit Economics: LTV, CAC, Contribution Margin” learning path. Start with daily 5-minute micro-lessons that build from fundamentals to hands-on application.
- What is a healthy LTV:CAC ratio for a SaaS business?
- This is covered in the “Understand Unit Economics: LTV, CAC, Contribution Margin” learning path. Start with daily 5-minute micro-lessons that build from fundamentals to hands-on application.
- Why is CAC payback period more honest than LTV:CAC?
- This is covered in the “Understand Unit Economics: LTV, CAC, Contribution Margin” learning path. Start with daily 5-minute micro-lessons that build from fundamentals to hands-on application.
- How do cohort retention curves change the LTV calculation?
- This is covered in the “Understand Unit Economics: LTV, CAC, Contribution Margin” learning path. Start with daily 5-minute micro-lessons that build from fundamentals to hands-on application.
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