Stop 10 · Monetization & Business MetricsTopics · 3/8

Unit Economics: CAC, LTV & Payback Period

In short

Growing fast while losing money on every customer just loses money faster. Unit economics tells you whether each customer is worth acquiring.

CAC is what it costs to acquire one customer, LTV is what that customer is worth over their lifetime, and payback period is how long it takes to recoup CAC — the numbers that determine if growth is actually profitable.

The purple blob hands out pamphlets at a coaching centre gate as students walk in.

Think of it like this

The coaching centre pamphlets

A coaching centre spends on pamphlets and demo classes to win each student. If a student pays fees for two years, that spending is worth it. If most quit after a month, the centre is paying to lose money.

Watch it happen

Working out one customer's economics

CAC ₹600

Margin ₹150/mo

Life 12 mo

LTV ₹1,800

1/5CAC is customer acquisition cost: total sales and marketing spend divided by new customers.

The big ideas

What you need to know

CAC

All acquisition spend divided by new customers in that period, including ads and sales salaries.

LTV

Gross margin a customer brings over their lifetime. Use margin, not revenue, to be honest.

Payback period

Months to earn back CAC. Shorter payback means less cash tied up in growth.

Ratio matters

If LTV is below CAC, growth destroys value. A ratio around 3 to 1 is a common rule of thumb.

See it in code

Walk through the code

excel

1A1: Marketing spend      B1: 6000002A2: New customers        B2: 10003A3: CAC                  B3: =B1/B24A4: Margin per month     B4: 1505A5: Monthly churn        B5: 8%6A6: LTV                  B6: =B4/B57A7: Payback (months)     B7: =B3/B4

1/3CAC: ₹6 lakh spent to win 1,000 customers gives ₹600 each.

A simple unit economics sheet. Dividing monthly margin by monthly churn is a quick LTV estimate.

Save yourself the pain

Common mistakes

Oops

Calculating LTV from revenue instead of margin.

Do this instead

Use gross margin. Revenue-based LTV makes every customer look more valuable than they are.

Oops

Leaving salaries out of CAC.

Do this instead

Include sales and marketing team costs, not just ad spend.

Your mission

Build the sheet

~25 min

Quick check

CAC is ₹1,200 and each customer brings ₹200 a month in margin. What's the payback period?

Go deeper

1Calculate a rough LTV:CAC ratio for a hypothetical subscription product.
2Learn the commonly cited healthy benchmark (LTV:CAC around 3:1) and why it's a rule of thumb, not law.
3Understand why a growing user base can still mean a dying business if unit economics are broken.