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Unit Economics Calculator

Check whether each customer is worth what it costs to win. Enter revenue, cost to serve, acquisition cost and churn per customer to see contribution margin, lifetime value, the LTV:CAC ratio, CAC payback months and a month-by-month payback curve.

Last updated:

Revenue, COGS and churn are per
Per customer
$

ARPU / ARPA for the period

$

Hosting, support, payment processing, onboarding

% of revenue

Commissions, revenue share, transaction fees

$

Sales + marketing spend ÷ new customers

%

Share of customers lost per period

Optional
%

Discounts future contribution; 0 for simple LTV

To value a monthly cohort

Enter your values to see the result.
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How to use the Unit Economics Calculator

  1. Choose monthly or annual figures to match your data.
  2. Enter average revenue and cost to serve per customer, plus any variable costs as a % of revenue.
  3. Enter CAC: total sales and marketing spend divided by new customers won.
  4. Enter customer churn for the same period (and an optional discount rate).
  5. Press Calculate unit economics to see LTV, LTV:CAC, payback and the payback curve.

Unit economics formulas

  • Contribution margin (CM) = revenue per customer − COGS − variable costs
  • Customer lifetime = 1 ÷ monthly churn rate
  • LTV = CM ÷ monthly churn (or CM × (1 + d) ÷ (d + churn) with monthly discount rate d)
  • LTV:CAC = LTV ÷ CAC
  • CAC payback (months) = CAC ÷ monthly CM

Example: a customer pays $120 a month and costs $30 a month to serve, so CM is $90 (75%). At 3% monthly churn the average customer stays 33.3 months and LTV is $90 ÷ 0.03 = $3,000. With a $1,200 CAC, LTV:CAC is 2.5 : 1 and payback takes 1,200 ÷ 90 = 13.3 months.

Benchmarks at a glance

MetricWeakTypical targetStrong
LTV : CACBelow 1 : 1About 3 : 14 : 1 – 5 : 1
CAC paybackOver 24 months12 – 18 monthsUnder 12 months
Contribution / gross margin (software)Under 60%70% – 80%Over 80%

These are common rules of thumb for subscription businesses; physical-product and marketplace businesses usually run lower margins and need faster payback.

Tips

  • Calculate CAC as fully loaded: include salaries of sales and marketing staff, tools and agency fees, not just ad spend.
  • Segment the numbers. Blended unit economics can hide a profitable channel or plan subsidizing an unprofitable one.
  • Use cohort data for churn when you have it; early-month churn is often higher than later churn.
  • Improving churn usually raises LTV more than raising price, because lifetime appears in the denominator.

Frequently asked questions

What are unit economics?

Unit economics are the revenues and costs tied to a single unit of the business, usually one customer. They answer whether a typical customer brings in more contribution over their lifetime than it costs to acquire them. The core metrics are contribution margin, customer lifetime value (LTV), customer acquisition cost (CAC), the LTV:CAC ratio and CAC payback.

How do you calculate LTV from churn?

A simple margin-based LTV is monthly contribution margin per customer divided by monthly churn rate. For example, $90 of monthly contribution and 3% monthly churn give $90 ÷ 0.03 = $3,000. Using revenue instead of contribution margin overstates LTV because it ignores the cost of serving the customer.

What is a good LTV to CAC ratio?

A ratio of about 3:1 is the widely used benchmark for a healthy subscription business. Below 1:1 the company loses money on each customer; between 1 and 3 it is profitable per customer but may struggle to fund growth; well above 5:1 can mean it is under-investing in acquisition.

How is CAC payback calculated?

CAC payback months = CAC ÷ monthly contribution margin per customer. With a $1,200 CAC and $90 of monthly contribution, payback takes 13.3 months. Many SaaS investors look for payback within about 12 to 18 months, and shorter for small-business customers who churn faster.

How do I convert annual churn to monthly churn?

Use monthly churn = 1 − (1 − annual churn)^(1/12). A 35% annual churn rate is about 3.53% a month, not 35 ÷ 12 = 2.92%. The calculator does this conversion automatically when you choose annual inputs.

What costs belong in contribution margin?

Include costs that scale with each customer: hosting and infrastructure, customer support, payment processing, onboarding, third-party licences, and commissions or revenue share. Exclude fixed overhead such as rent, R&D and general administration, and exclude acquisition costs, which are captured in CAC.

Why discount LTV?

Money received years from now is worth less than money today. Adding an annual discount rate (for example 10%) reduces the value of later months, which matters most when churn is low and customers stay for many years.

Are all the tools on FreeToolCabin tested for quality and accuracy?

Yes! Every tool on our site undergoes automated Q/A testing in real browser environments to ensure high precision, correct output, and zero errors. If you happen to spot a bug or have a suggestion, please contact us at [email protected] and our team will review it right away.

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