From thinking-frameworks-skills
Analyzes unit economics including CAC, LTV, contribution margin, payback period, and cohort analysis to evaluate business model viability, scalability, pricing decisions, and growth readiness.
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- [Workflow](#workflow)
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Scenario: SaaS startup, $100/month subscription
Copy this checklist and track your progress:
Unit Economics Analysis Progress:
- [ ] Step 1: Define the unit
- [ ] Step 2: Calculate CAC
- [ ] Step 3: Calculate LTV
- [ ] Step 4: Assess contribution margin
- [ ] Step 5: Analyze cohorts
- [ ] Step 6: Interpret and recommend
Step 1: Define the unit
What is your unit of analysis? (Customer, product SKU, transaction, subscription). See resources/template.md.
Step 2: Calculate CAC
Total acquisition costs (sales + marketing) ÷ new units acquired. Break down by channel if applicable. See resources/template.md and resources/methodology.md.
Step 3: Calculate LTV
Revenue over unit lifetime minus variable costs. Use cohort data for retention/churn. See resources/template.md and resources/methodology.md.
Step 4: Assess contribution margin
(Revenue - Variable Costs) ÷ Revenue. Identify levers to improve margin. See resources/template.md and resources/methodology.md.
Step 5: Analyze cohorts
Track retention, LTV, payback by customer cohort (acquisition month/channel/segment). See resources/template.md and resources/methodology.md.
Step 6: Interpret and recommend
Assess LTV/CAC ratio, payback period, cash efficiency. Make recommendations (pricing, channels, growth). See resources/template.md and resources/methodology.md.
Validate using resources/evaluators/rubric_financial_unit_economics.json. Minimum standard: Average score ≥ 3.5.
Pattern 1: SaaS Subscription Model
Pattern 2: E-commerce / Transactional
Pattern 3: Marketplace / Platform
Pattern 4: Freemium / PLG (Product-Led Growth)
Pattern 5: Enterprise / High-Touch Sales
Fully-loaded CAC: Include all acquisition costs (sales salaries, marketing spend, tools, overhead allocation). Excluding sales team salaries is a common miss that inflates perceived economics.
True variable costs: Only include costs that scale with each unit (COGS, hosting per user, transaction fees). Exclude fixed costs (rent, core engineering). Accurate margins are essential for LTV.
Cohort-based LTV: Early cohorts are not the same as recent cohorts. Track retention curves by cohort. Base LTV on observed retention, not assumptions.
Use conservative time horizons: LTV is a prediction. For new products with limited data, weight recent cohorts more heavily and avoid projecting far beyond observed behavior.
Optimize both payback and LTV/CAC: High LTV/CAC but long payback (>18 months) strains cash. Fast payback (<6 months) allows rapid reinvestment.
Analyze at channel level: Blended metrics hide the truth. CAC and LTV vary by channel (paid search vs. referral vs. content). Break down separately to optimize spend.
Retention drives LTV exponentially: Improving monthly churn from 5% to 4% increases LTV by 25%. Retention improvements typically matter more than acquisition improvements.
Gross margin floor: SaaS needs >=60% gross margin, e-commerce >=40%, to be viable. Low margin means even high LTV/CAC ratios yield poor cash flow.
Common pitfalls:
Key formulas:
CAC = (Sales + Marketing Costs) ÷ New Customers Acquired
LTV (subscription) = ARPU × Gross Margin % ÷ Monthly Churn Rate
LTV (transactional) = AOV × Purchase Frequency × Gross Margin % × Lifetime (years)
Contribution Margin % = (Revenue - Variable Costs) ÷ Revenue
LTV/CAC Ratio = Lifetime Value ÷ Customer Acquisition Cost
Payback Period (months) = CAC ÷ (Monthly Revenue × Gross Margin %)
CAC Payback (months) = S&M Spend ÷ (New ARR × Gross Margin %)
Gross Margin % = (Revenue - COGS) ÷ Revenue
Customer Lifetime (months) = 1 ÷ Monthly Churn Rate
MRR (Monthly Recurring Revenue) = Sum of all monthly subscriptions
ARR (Annual Recurring Revenue) = MRR × 12
ARPU (Average Revenue Per User) = Total Revenue ÷ Total Users
NRR (Net Revenue Retention) = (Starting ARR + Expansion - Contraction - Churn) ÷ Starting ARR
Benchmarks (varies by stage and industry):
| Metric | Good | Acceptable | Poor |
|---|---|---|---|
| LTV/CAC Ratio | ≥5:1 | 3:1 - 5:1 | <3:1 |
| Payback Period | <6 months | 6-12 months | >18 months |
| Gross Margin (SaaS) | ≥80% | 60-80% | <60% |
| Gross Margin (E-commerce) | ≥50% | 40-50% | <40% |
| Monthly Churn (B2C SaaS) | <3% | 3-7% | >7% |
| Monthly Churn (B2B SaaS) | <1% | 1-3% | >3% |
| CAC Payback (SaaS) | <12 months | 12-18 months | >18 months |
| NRR (SaaS) | ≥120% | 100-120% | <100% |
Decision framework:
| LTV/CAC | Payback | Recommendation |
|---|---|---|
| <1:1 | Any | Stop: Losing money on every customer. Fix model or pivot. |
| 1:1 - 2:1 | >12 months | Caution: Marginal economics. Don't scale yet. Improve retention or reduce CAC. |
| 2:1 - 3:1 | 6-12 months | Optimize: Unit economics acceptable. Focus on improving before scaling. |
| 3:1 - 5:1 | <12 months | Scale: Good economics. Can profitably invest in growth. |
| >5:1 | <6 months | Aggressive scale: Excellent economics. Raise capital, increase spend rapidly. |
Inputs required:
Outputs produced:
unit-economics-analysis.md: Full analysis with CAC, LTV, ratios, cohort breakdownscohort-retention-table.csv: Retention curves by cohortchannel-profitability.csv: CAC and LTV by acquisition channelrecommendations.md: Pricing, channel, growth recommendations based on metrics