Calculate startup unit economics: LTV (Lifetime Value), LTV:CAC ratio, CAC payback period in months, contribution margin per customer, and customer lifetime. Uses ARPU, gross margin %, monthly churn %, and CAC.
Unit Economics Parameters
Enter ARPU (monthly revenue per customer), gross margin %, monthly churn %, and CAC to calculate LTV, LTV:CAC, and CAC payback
Understanding the Inputs
Key components for startup unit economics
ARPU & Gross Margin
ARPU (Average Revenue Per User) is monthly recurring revenue per customer. Gross margin % = (Revenue − COGS) / Revenue; use recurring margin for subscription businesses.
Use trailing or cohort ARPU for consistency
Contribution margin = ARPU × Gross margin %
Monthly Churn & CAC
Monthly churn % = customers lost in month ÷ customers at start of month. CAC = total sales + marketing spend (and optional onboarding) ÷ new customers in the same period.
Unit economics describe the profit (or contribution) per customer over that customer's lifetime, and the cost to acquire that customer. For startups, the core metrics are LTV (Lifetime Value), CAC (Customer Acquisition Cost), the LTV:CAC ratio, and the CAC payback period (months to recover CAC from contribution margin).
Why It Matters
If LTV is too low relative to CAC, or payback is too long, the business cannot scale acquisition profitably. Investors and operators use LTV:CAC ≥ 3:1 and payback under 18 months (often under 12 for SaaS) as benchmarks for healthy unit economics.
Lifetime Value (LTV): Formula and Components
LTV is the total contribution (revenue minus variable costs) you expect from one customer over their lifetime. A simple, widely used formula for subscription businesses is:
Where Contribution margin per month = ARPU × (Gross margin % ÷ 100), and Customer lifetime (months) = 100 ÷ Monthly churn %. For example, 5% monthly churn implies a 20-month average lifetime.
Defining the Inputs
ARPU (monthly): Average recurring revenue per customer per month.
Gross margin %: (Revenue − COGS) / Revenue; use recurring margin for subscription.
Monthly churn %: Percentage of customers lost each month; 100 ÷ churn % = average customer lifetime in months.
Customer Acquisition Cost (CAC)
CAC = Total sales and marketing spend (and optionally onboarding/implementation) in a period ÷ New customers acquired in that same period. Use the same period for spend and new customers to avoid mis-stating CAC.
LTV:CAC Ratio and the 3:1 Rule
LTV:CAC = LTV ÷ CAC. A ratio of 3:1 or higher is commonly considered healthy: for every dollar spent acquiring a customer, the business expects three or more dollars of contribution over the customer's lifetime. A ratio below 3 often signals that acquisition is expensive relative to value, or that churn is too high.
Improving LTV:CAC
Raise LTV by increasing ARPU, improving gross margin, or reducing churn. Lower CAC by improving channel efficiency, targeting, and conversion. Both levers improve the ratio.
CAC Payback Period
CAC payback = CAC ÷ Contribution margin per month. It is the number of months of contribution margin required to recover the cost of acquiring one customer. For SaaS, payback under 18 months (ideally under 12) is a common target; longer payback increases sensitivity to churn and cash flow.
Using Unit Economics in Planning
Use LTV:CAC and payback to decide whether to scale marketing spend, to set CAC targets by channel, and to model runway (e.g. with a marketing spend impact on runway calculator). If LTV:CAC is below 3 or payback over 18 months, improve unit economics before scaling acquisition.
Conclusion
Startup unit economics—LTV, CAC, LTV:CAC, and CAC payback—determine whether customer acquisition is profitable and scalable. Target LTV:CAC ≥ 3:1 and CAC payback under 18 months (ideally under 12 for SaaS), and use this calculator to quantify and track these metrics.
Frequently Asked Questions
Common questions about startup unit economics
What is LTV in unit economics?
LTV (Lifetime Value) is the total contribution (revenue minus variable costs) you expect from one customer over their lifetime. For subscription businesses, LTV = Contribution margin per month × Customer lifetime (months), where customer lifetime = 100 ÷ Monthly churn %.
What is a good LTV:CAC ratio?
A ratio of 3:1 or higher is generally considered healthy: for every dollar spent acquiring a customer, the business expects at least three dollars of contribution over the customer's lifetime. Below 3:1, acquisition is often too expensive relative to value or churn is too high.
How do I calculate CAC payback period?
CAC payback (months) = CAC ÷ Contribution margin per customer per month. Contribution margin per month = ARPU × (Gross margin % ÷ 100). It is the number of months of contribution required to recover the cost of acquiring one customer.
What is a good CAC payback for SaaS?
Payback under 18 months is a common target; under 12 months is ideal for SaaS. Long payback increases sensitivity to churn and ties up cash; short payback supports scalable acquisition and faster recovery of marketing spend.
Why use monthly churn for LTV?
Monthly churn % is the percentage of customers lost each month. Average customer lifetime in months = 100 ÷ Monthly churn % (e.g. 5% churn → 20 months). LTV then = Contribution margin per month × Customer lifetime. This simple formula is widely used for subscription unit economics; cohort-based LTV can refine accuracy.
Usage of this Calculator
Practical applications
Who Should Use This Calculator?
Founders & CFOsTo quantify LTV, LTV:CAC, and payback and set targets for scaling acquisition.
Growth / MarketingTo ensure marketing spend is justified by unit economics and payback.
InvestorsTo assess whether a startup’s unit economics support scalable growth.
Startup AdvisorsTo model scenarios (e.g. churn or ARPU changes) and recommend LTV:CAC and payback targets.
Limitations
LTV assumes constant monthly churn; cohort-based LTV can differ if churn varies by tenure.
Use consistent definitions for ARPU, margin, churn, and CAC across periods and segments.
Summary
The Unit Economics Calculator (Startup) computes LTV, LTV:CAC ratio, CAC payback period, contribution margin per customer, and customer lifetime from ARPU, gross margin %, monthly churn %, and CAC.
Use it to track and target LTV:CAC ≥ 3:1 and CAC payback under 18 months for scalable, profitable acquisition.
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Calculate startup unit economics: LTV (Lifetime Value), LTV:CAC ratio, CAC payback period in months, contribution margin per customer, and customer lifetime. Uses ARPU, gross margin %, monthly churn %, and CAC.
How to use Unit Economics Calculator (Startup)
Step-by-step guide to using the Unit Economics Calculator (Startup):
Enter your values. Input the required values in the calculator form
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Frequently asked questions
How do I use the Unit Economics Calculator (Startup)?
Simply enter your values in the input fields and the calculator will automatically compute the results. The Unit Economics Calculator (Startup) is designed to be user-friendly and provide instant calculations.
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Are the results from Unit Economics Calculator (Startup) accurate?
Yes, our calculators use standard formulas and are regularly tested for accuracy. However, results should be used for informational purposes and not as a substitute for professional advice.