Unit economics (LTV vs CAC)
In one sentence
Do you earn more from a customer over their lifetime than it costs to get them?
The simple version
Unit economics zooms in on one customer. CAC (customer acquisition cost) is what you spend to win them. LTV (lifetime value) is the profit they bring before they leave. If LTV is bigger than CAC — comfortably — every new customer makes you richer. If not, growth makes you poorer.
Why it matters
Many startups grow fast and still die because each customer loses them money.
How to do it
- 1Add up sales and marketing spend for a month.
- 2Divide by new customers that month = CAC.
- 3Work out average profit per customer per month.
- 4Multiply by how many months they typically stay = LTV.
- 5Compare: many SaaS investors look for LTV around 3× CAC or more (a rule of thumb, not a law).
- 6Also check payback: how many months to earn back CAC?
Real-world example
You spend £3,000 on ads and win 30 customers: CAC = £100. Each pays £20/month profit and stays 15 months: LTV = £300. Ratio 3:1 — healthy.
What the books say
Pick metrics that change behaviour — and know the numbers that make your business model work.
Common mistakes
- Using revenue instead of profit for LTV.
- Ignoring founder time in CAC.
- Guessing lifetime before you have data.
Questions people ask
What if I don't know churn yet?
Use a cautious guess, then replace it with real data as soon as you have a few months of customers.
References
- [1]
More books on this in the library
Predictable Revenue
Predictable Revenue provides actionable insights for building a high-growth sales team, focusing on generating a constant flow of new leads and customers. It is particularly valuable for B2B SaaS companies looking to optimize their salesforce and achieve sustainable growth.
Crossing the Chasm: Marketing and Selling Disruptive Products to Mainstream Customers
Strategies for tech startups to cross from early adopters to mainstream customers via niche domination and 'whole product' assembly, enabling scalable acquisition. Vs Traction Channels' testing, emphasizes beachhead markets like enterprise software; use cases include Salesforce's CRM pivot to SMBs post-chasm. Go-to-market bible for B2B innovation.
$100M Leads: How to Get Strangers to Want to Buy Your Stuff
Equips startup founders with actionable lead generation strategies through four core channels—warm outreach, content posting, cold outreach, and paid ads—for scalable customer acquisition. Unlike the broader 19 Traction Channels, it prioritizes high-ROI tactics with proven use cases like gym chains generating hundreds of leads monthly and agencies filling sales pipelines. Ideal for go-to-market strategies in resource-constrained startups.
Demand-Side Sales 101: Stop Selling and Help Your Customers Make Progress
Applies Jobs-to-be-Done to startup sales, mapping customer buying timelines and forces to accelerate acquisition without pushy tactics. Vs Traction Channels, focuses on demand-side psychology for higher close rates; use cases cutting B2B sales cycles by 50% via struggle interviews. Go-to-market sales transformation.
Dotcom Secrets
Startup- and growth-focused marketing book by Russell Brunson that lays out step‑by‑step frameworks for building sales funnels, capturing leads, and converting online traffic into paying customers—highly relevant for startup founders looking to scale digital customer acquisition.
The Growth Equation
"The Growth Equation" by Andy Budd is a comprehensive guide for startup founders, synthesizing lessons on customer discovery, positioning, sales, growth, and product development. It provides actionable frameworks and real-world examples to help founders achieve their first million in revenue.
Learn next
One Metric That Matters
At each stage, pick the single number that best shows progress — and focus on it.
Traction channels
There are many ways to get customers. Test a few, then focus on the one that works.
Pricing on value
Set prices by what your product is worth to the customer, not just what it costs you.