per-customer profitability
Unit economics describe what an average customer brings in and costs over their whole relationship with you: acquisition cost (CAC), lifetime value (LTV), margin, payback period. If the unit is profitable, growth creates value; if not, it destroys value faster the more you accelerate.
A concrete example
Example
A customer costs $450 to acquire and brings $3,600 of revenue over the relationship, at 35% margin: $1,260 of margin for $450 invested. The unit is healthy, you can accelerate.
Why it matters
It is the truth test before any scaling: many companies raise their marketing budget without knowing whether each additional customer makes them richer or poorer. Unit economics answer that question with three numbers.
Frequently asked questions
- What LTV/CAC ratio should I aim for?
- The classic benchmark is 3: a customer brings at least three times what they cost to acquire. Below 1, every customer makes you poorer; far above 5, you are probably under-investing in acquisition.
- How do I improve them?
- Two levers: lower the CAC (better targeting, better conversion, faster follow-up) or raise the LTV (retention, upsell, purchase frequency). The second is often the most neglected and the most profitable.