Unit Economics: CAC, LTV & Payback Period

Summary

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.

• 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.