Tip 15: Know and measure your unit economics
Knowing your unit economics will be critical when you are in front of sophisticated investors, but they are also metrics that will help you run a better business.
To measure your unit economics, there are some formulas that help you:
Customer Acquisition Cost (CAC): ($) Total sales and marketing expenses / (#) new customers acquired LTV to CAC Ratio Calculation: ($) LTV / ($) CAC
Lifetime value (LTV)
Churn: [ (#) Total customers churned this time period / (#) Total customers at the start of this time period ] x 100 = (%) Customer Churn Rate
• For SaaS companies:
⁃ ($) Average monthly revenue per customer x (# months) customer
lifetime x Gross Margin (%)
⁃ ($) Average monthly revenue per customer x (1 /monthly churn) X
Gross Margin (%)
• For Ecommerce companies:
⁃ ($) Average Order Value x (#) Repeat Sales x (# months) Average
Retention Time x Gross Margin (%)
• For Mobile Apps (note that adding the referral value is optional):
⁃ ($) Average revenue per user x (1/monthly churn) + ($) Referral
value x Gross Margin (%) = ($)
LTV to CAC Ratio Calculation: ($) LTV / ($) CAC
The most important aspect is that if your LTV to CAC ratio is at least 3, otherwise your ratio is too low. You should always aim for it to be higher than 3.
Page 1 Page 2 Page 3 Page 4 Page 5