Startup metrics
Unit economics
Master Customer Acquisition Cost, Lifetime Value, LTV:CAC ratio, and gross margin — the metrics that determine whether your startup can grow profitably.
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Getting started
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Financial metrics
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Product and growth
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Customer metrics
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Operations
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Putting it into practice
Unit economics answer the most fundamental business question: do you make more money from a customer than it costs to acquire and serve them? If the answer is no, growing faster just means losing money faster.
Customer Acquisition Cost (CAC)
CAC
Total sales + marketing costs ÷ New customers acquired
CAC measures the all-in investment required to win each new customer. The biggest mistake founders make is under-counting costs — include salaries, tools, ad spend, events, and content creation.
What to include
| Include | Don’t include |
|---|---|
| Sales team salaries + commissions | Product development |
| Marketing team salaries | General admin |
| Ad spend (search, social, display) | Customer success (usually) |
| Content and SEO costs | Office overhead |
| Marketing tools and CRM | |
| Events and conferences |
CAC by channel
Blended CAC is useful for a high-level view, but channel-level CAC is where you make decisions. Your content marketing CAC might be $200 while your paid search CAC is $800 — that changes how you allocate budget.
| Segment | CAC range | Sales model |
|---|---|---|
| Self-serve SMB | $50 – $200 | Product-led, no sales touch |
| SMB | $100 – $500 | Low-touch sales |
| Mid-market | $500 – $2,000 | Inside sales |
| Enterprise | $2,000 – $15,000+ | Field sales, long cycles |
Customer Lifetime Value (LTV)
Simple LTV
ARPU ÷ Monthly churn rate
Gross-margin-adjusted LTV
ARPU × Gross margin % ÷ Monthly churn rate
LTV estimates the total revenue (or profit) a customer generates over their entire relationship. Use the gross-margin-adjusted version for strategic decisions — revenue-based LTV overstates the actual value when your margins aren’t 100%.
Example calculation
- ARPU: $100/month
- Monthly churn: 5%
- Gross margin: 80%
LTV = $100 × 0.80 ÷ 0.05 = $1,600
How to improve LTV
The three levers are straightforward:
- Reduce churn — better onboarding, customer success, product value (retention metrics)
- Increase ARPU — pricing optimization, upsells, usage-based components (revenue metrics)
- Improve gross margins — optimize infrastructure, negotiate vendor costs
LTV:CAC ratio
LTV:CAC ratio
LTV ÷ CAC
This is arguably the most important unit economics metric. It tells you whether your business model is sustainable and how aggressively you can invest in growth.
LTV:CAC ratio
Below 3:1 — fix efficiency before scaling. Reduce CAC through channel optimization, improve LTV through better retention, or increase prices.
Above 10:1 — you’re probably under-investing in growth. Increase marketing spend, expand the sales team, or enter new markets. You’re leaving growth on the table.
3:1 to 5:1 — the sweet spot for most growth-stage startups. Healthy enough to sustain growth while building toward profitability.
CAC payback period
CAC payback period
CAC ÷ (Monthly ARPU × Gross margin %)
Payback period answers: how many months until a customer’s gross profit covers the cost of acquiring them? This directly impacts cash flow — shorter payback means you can reinvest faster without needing external capital.
Example calculation
- CAC: $500
- Monthly ARPU: $100
- Gross margin: 80%
Payback = $500 ÷ ($100 × 0.80) = 6.25 months
CAC payback period
Annual contracts with upfront payment dramatically improve effective payback — you get 12 months of revenue on day one instead of waiting month by month.
Gross margin
Gross margin
(Revenue − Cost of Goods Sold) ÷ Revenue × 100
Gross margin determines how much of each revenue dollar actually contributes to covering acquisition costs and generating profit. SaaS companies should have high margins — if yours are below 70%, something is structurally wrong.
SaaS COGS (what counts)
| Include (direct costs) | Exclude (indirect costs) |
|---|---|
| Hosting and infrastructure | Sales and marketing |
| Third-party software licenses | General admin |
| Payment processing fees | Product development |
| Direct support costs | Customer success (usually) |
| Data/API costs |
SaaS gross margin
Segmented analysis
Always analyze unit economics by segment — blended numbers can hide real problems. Your enterprise segment might have 5:1 LTV:CAC while your SMB segment is underwater at 1.5:1.
Key segments to track:
- Customer size — SMB vs mid-market vs enterprise
- Acquisition channel — organic vs paid vs sales-driven
- Geography — different markets have different economics
- Pricing tier — self-serve vs sales-assisted
If a segment’s unit economics don’t work, either fix them (better targeting, higher prices, lower cost-to-serve) or stop investing in that segment.
Try this in Basedash
Calculate LTV:CAC ratio by acquisition channel and customer segment over the past year from our billing and marketing data
Connect Stripe, your CRM, and ad platforms to calculate unit economics automatically across every segment.
Get started free →Frequently asked questions
- What is a good LTV:CAC ratio for SaaS?
- A healthy LTV:CAC ratio for B2B SaaS is 3:1 to 5:1 — meaning you earn $3–$5 for every $1 spent on acquisition. Below 3:1 is risky, above 10:1 suggests you're under-investing in growth. The ideal ratio depends on your stage, growth rate, and available capital.
- How do you calculate Customer Acquisition Cost?
- CAC = total sales and marketing costs ÷ number of new customers acquired in the same period. Include salaries, commissions, ad spend, tools, and content costs. Calculate by channel (not just blended) to understand which acquisition paths are most efficient.
- What is a good CAC payback period?
- Under 12 months is excellent for B2B SaaS. 12–18 months is good. Over 24 months is concerning unless you have very long customer lifetimes (enterprise contracts). Annual upfront billing dramatically improves effective payback.