Why unit economics matter more as you scale

When you’re in the early stages, it’s all about momentum. Build the product. Get traction. Show growth. But once you’re raising bigger rounds or hiring a team, your financial fundamentals start to matter — fast. And unit economics are right at the centre of that.

Investors look at them. Boards question them. And if they’re broken, no amount of top-line growth can cover it up for long.

So here’s a straight-talking guide to help you test if your unit economics are solid — or quietly undermining your ability to scale.

First, what do we actually mean by “unit economics”?

Put simply, unit economics tells you whether you’re making (or losing) money per customer — and how long it takes to recover what you spent acquiring them.

The basic equation most founders hear is:

LTV / CAC

Lifetime Value divided by Customer Acquisition Cost

It’s simple to say, but much harder to calculate properly — and even harder to fix if the answer isn’t what you hoped for.

So let’s break it down.

Quick Test 1: Do you actually know your CAC?

This isn’t just your Facebook ads spend.

True CAC includes:

• Paid ads
• Sales team costs
• SDR salaries or commissions
• Marketing salaries
• Tools and software that support the funnel
• Agency or contractor spend

If you’re not including all of those, your CAC is artificially low. And if you are including them and it’s still reasonable? Great — you’re already ahead of a lot of founders.

What to look for:

• CAC that’s increasing every quarter = red flag
• CAC that doesn’t match your average deal size = red flag
• CAC payback period longer than 12 months (in SaaS) = often a red flag

Quick Test 2: Are you counting LTV properly?

Founders often overestimate Lifetime Value. It’s not just monthly revenue times 24 months.

Here’s what needs to be factored in:

• Churn: even small churn rates massively reduce LTV
• Gross margin: LTV should reflect profit, not just revenue
• Expansion revenue: if your product allows for upsells or add-ons, great — but don’t assume all customers will grow

Try this back-of-the-napkin version:

LTV = Average Monthly Gross Profit per Customer × Average Customer Lifespan (in months)

If you’ve never looked at gross profit per customer — now’s the time.

Quick Test 3: Are you making your money back fast enough?

Even if your LTV/CAC ratio looks healthy on paper, a long CAC payback period can kill your cash flow.

Let’s say:

• You spend £1,000 to acquire a customer
• That customer pays you £200/month
• Your gross margin is 80%, so you make £160/month profit

That’s a 6.25-month payback period.

That might be fine for a SaaS investor — but what if it’s 12+ months? What if you’re burning cash to grow and your sales cycle is slow? That’s when the alarm bells start ringing.

Ideally:

• SaaS startups should aim for <12-month CAC payback
• Product or marketplace businesses should know their blended CAC and margin by channel
• You’re tracking CAC by segment or acquisition channel, not just as one blanket number

Quick Test 4: Can you improve them without breaking everything?

This is the most important one. If your unit economics aren’t great — can you fix them?

Look at:

• Pricing: Are you undercharging? Would better segmentation or packaging increase LTV?
• Onboarding: Are you losing people before they get value?
• Sales strategy: Is your CAC higher because you’re chasing the wrong customers?
• Retention: Are you spending all your energy on acquisition but leaking users every month?

If your numbers don’t look great but you can see the levers, that’s a good sign. Broken unit economics with no obvious path to fix them? That’s a much harder sell — to yourself and to investors.

You don’t need perfect numbers — you need believable ones

No investor expects a startup to have the same margins as a public company. But they do want to know that you:

• Understand your numbers
• Know where the problems are
• Have a plan to improve them

Getting this right builds trust. And even more importantly — it helps you make better decisions as a founder.