Unit economics is one of those topics founders nod along to in investor meetings and then quietly worry about afterwards. The formula everyone knows is LTV divided by CAC. The difficulty is that both numbers are easy to calculate badly, and a flattering answer is worse than no answer at all.

This article works through four tests you can run on your own numbers: whether your CAC includes everything it should, whether you’re calculating lifetime value on profit rather than revenue, how long it takes to get the money back, and whether you can realistically move any of it. There’s a worked example running throughout, and a note on the benchmarks investors use.

What unit economics actually measures

Unit economics tells you whether you make or lose money on each customer, and how long it takes to recover what you spent acquiring them.

Two ratios carry most of the weight. LTV:CAC compares the profit a customer generates over their lifetime against the cost of winning them – investors generally look for at least 3:1. CAC payback measures how many months it takes to earn that acquisition cost back, and matters because it’s fundamentally a cash question rather than a profitability one.

Early on these numbers are supposed to look unimpressive. You’re doing things that don’t scale because you’re still working out why people buy. What investors want to see is that you know the numbers and that the trend is going in the right direction.

Test one: is your CAC fully loaded?

Most CAC figures are lower than they should be, and it’s rarely deliberate. Paid spend gets counted because it arrives as an invoice. The rest often doesn’t.

A fully loaded CAC includes:

• Paid advertising and channel spend
• Sales salaries, commissions and SDR costs
• Marketing salaries
• Agency and contractor spend
• Tools and software supporting the funnel

On the salary lines, use the loaded cost rather than the headline figure. Employer National Insurance and pension contributions typically add 20-25% on top of every salary, and leaving that out understates CAC across the board.

Three things worth checking once you’ve got the full number. Is CAC climbing quarter on quarter? Does it look proportionate to your average contract value? And are you tracking it by segment or channel rather than as one blended figure – because a healthy blended CAC can conceal one channel that’s quietly unprofitable.

Being explicit about what you’ve included matters as much as the number itself. There’s no universal definition, so investors will want to know what sits inside yours.

Test two: are you calculating LTV on profit?

The common mistake is treating lifetime value as revenue multiplied by an optimistic guess at how long customers stay. Two corrections are needed.

Use gross profit, not revenue. A customer paying £200 a month at an 80% gross margin generates £160 of gross profit, not £200. If your margin sits below the 75-85% range investors expect for SaaS, that gap widens.

Derive lifespan from churn. Average customer lifespan is 1 divided by your monthly churn rate. At 2% monthly churn that’s 50 months. So:

LTV = £160 × 50 = £8,000

Against a fully loaded CAC of £1,000, that’s an LTV:CAC ratio of 8:1. Comfortable.

Now change one input. Hold everything else and move churn from 2% to 5% – still within the normal range for early-stage SaaS. Average lifespan drops to 20 months and LTV falls to £3,200. The ratio goes from 8:1 to 3.2:1, barely above the threshold, and nothing about the product or the pricing changed.

That sensitivity is the whole point. Churn compounds against you, and it does more damage to LTV than almost any other input. It’s also why LTV calculated without a churn assumption is close to meaningless.

Test three: how long until you get the money back?

A strong LTV:CAC ratio can still leave you with a cash problem, because LTV plays out over years while CAC is spent upfront.

CAC payback is the acquisition cost divided by monthly gross profit per customer. Using the numbers above:

£1,000 ÷ £160 = 6.25 months

Typical SaaS benchmarks sit in the 12-18 month range, so 6.25 is strong. What counts as acceptable depends on your model – longer contracts and higher margins support longer payback, while monthly rolling contracts demand faster recovery because the customer can leave before you’ve broken even.

The reason this matters more in a high-growth phase than founders expect: if you’re acquiring customers quickly, you’re stacking acquisition costs on top of each other, all waiting to be recovered. It behaves like working capital. Growing fast without funding that gap is a well-documented way to run out of cash while the business looks like it’s succeeding.

Test four: can you actually move any of it?

This is the test that matters most, and it’s the one investors are really assessing.

Pricing. Underpricing is the most common issue we see, and it’s the fastest lever available. Better segmentation or packaging often lifts LTV without touching the product.

Onboarding. Customers who churn in the first three months usually never reached the point where the product delivered value. That’s a retention problem with an onboarding cause.

Sales focus. If CAC is rising, check whether you’re chasing deals that were never a good fit. Winning the wrong customer is expensive twice – once to acquire, once when they leave.

Retention. Given how much churn drives LTV, effort spent on keeping customers frequently returns more than the same effort spent acquiring them.

If your numbers are imperfect but you can identify the levers, that’s a reasonable position. Broken unit economics with no visible path to improving them is a much harder conversation.

What investors are actually assessing

Nobody expects public company margins from a startup. What investors want to establish is whether you understand your own numbers well enough to run the business on them.

That means knowing what’s inside your CAC, being able to explain why payback is where it is, and having a view on which lever you’d pull first if the ratio moved the wrong way. A founder presenting imperfect numbers with a clear diagnosis reads considerably better than one presenting good numbers they can’t account for.

Believable beats perfect

Unit economics rarely look tidy at an early stage, and they’re not supposed to. What separates the businesses that scale well is that someone was watching these numbers before anyone asked to see them – which means problems surface while there’s still time to fix them, rather than mid-diligence when there isn’t.