Core Unit Economics Metrics (LTV, CAC, Margin)
Unit economics are at the heart of sustainable business growth, especially for SaaS and subscription-based companies. By focusing on customer-level metrics, you can measure the efficiency and profitability of your business model. Three of the most critical metrics are Lifetime Value (LTV), Customer Acquisition Cost (CAC), and Gross Margin. These metrics help you answer essential questions: How much is each customer worth? How much does it cost to acquire them? And how much profit do you actually keep from their business? Mastering these indicators allows you to make informed decisions about marketing spend, pricing, and growth strategies.
12345678910111213141516import pandas as pd # Sample SaaS subscription dataset data = { "customer_id": [1, 2, 3, 4, 5], "signup_date": ["2022-01-15", "2022-02-01", "2022-03-10", "2022-03-22", "2022-04-05"], "churn_date": ["2023-01-15", None, "2022-08-10", None, "2022-09-30"], "revenue": [1200, 1500, 600, 1800, 900], "acquisition_cost": [300, 400, 250, 350, 200] } df = pd.DataFrame(data) df["signup_date"] = pd.to_datetime(df["signup_date"]) df["churn_date"] = pd.to_datetime(df["churn_date"]) print(df)
12345678910111213141516# Calculate Lifetime Value (LTV), CAC, and Gross Margin per customer # Assume gross margin is 80% for SaaS (typical for many software businesses) gross_margin_rate = 0.8 # LTV is the total revenue from a customer df["LTV"] = df["revenue"] # CAC is the acquisition cost for each customer df["CAC"] = df["acquisition_cost"] # Gross Margin is revenue * gross_margin_rate df["Gross_Margin"] = df["revenue"] * gross_margin_rate # Show results print(df[["customer_id", "LTV", "CAC", "Gross_Margin"]])
Understanding LTV, CAC, and gross margin enables you to evaluate core business questions. If your LTV greatly exceeds your CAC, your marketing spend is efficient—you are acquiring customers for less than they are worth. If your gross margin is high, your business keeps more profit from each dollar of revenue, which can fund further growth or buffer downturns. These metrics guide you on how much you can afford to pay to acquire new customers, help you set sustainable pricing, and inform how aggressively you can pursue growth. By tracking and optimizing LTV, CAC, and margin, you ensure your business invests in the right channels and achieves long-term profitability.
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Unit economics are at the heart of sustainable business growth, especially for SaaS and subscription-based companies. By focusing on customer-level metrics, you can measure the efficiency and profitability of your business model. Three of the most critical metrics are Lifetime Value (LTV), Customer Acquisition Cost (CAC), and Gross Margin. These metrics help you answer essential questions: How much is each customer worth? How much does it cost to acquire them? And how much profit do you actually keep from their business? Mastering these indicators allows you to make informed decisions about marketing spend, pricing, and growth strategies.
12345678910111213141516import pandas as pd # Sample SaaS subscription dataset data = { "customer_id": [1, 2, 3, 4, 5], "signup_date": ["2022-01-15", "2022-02-01", "2022-03-10", "2022-03-22", "2022-04-05"], "churn_date": ["2023-01-15", None, "2022-08-10", None, "2022-09-30"], "revenue": [1200, 1500, 600, 1800, 900], "acquisition_cost": [300, 400, 250, 350, 200] } df = pd.DataFrame(data) df["signup_date"] = pd.to_datetime(df["signup_date"]) df["churn_date"] = pd.to_datetime(df["churn_date"]) print(df)
12345678910111213141516# Calculate Lifetime Value (LTV), CAC, and Gross Margin per customer # Assume gross margin is 80% for SaaS (typical for many software businesses) gross_margin_rate = 0.8 # LTV is the total revenue from a customer df["LTV"] = df["revenue"] # CAC is the acquisition cost for each customer df["CAC"] = df["acquisition_cost"] # Gross Margin is revenue * gross_margin_rate df["Gross_Margin"] = df["revenue"] * gross_margin_rate # Show results print(df[["customer_id", "LTV", "CAC", "Gross_Margin"]])
Understanding LTV, CAC, and gross margin enables you to evaluate core business questions. If your LTV greatly exceeds your CAC, your marketing spend is efficient—you are acquiring customers for less than they are worth. If your gross margin is high, your business keeps more profit from each dollar of revenue, which can fund further growth or buffer downturns. These metrics guide you on how much you can afford to pay to acquire new customers, help you set sustainable pricing, and inform how aggressively you can pursue growth. By tracking and optimizing LTV, CAC, and margin, you ensure your business invests in the right channels and achieves long-term profitability.
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