Unit economics is the per-customer profit profile of a business, expressed most commonly as customer lifetime value (LTV) versus customer acquisition cost (CAC). It's used to determine whether a business can profitably acquire customers at scale. It answers the deciding question of any growth-stage startup: does this company make money on each customer, and if it doesn't yet, will it.
The core ratio is LTV divided by CAC. The widely cited benchmark, popularized by David Skok and others in SaaS investing circles, is that LTV:CAC should be at least 3x for a healthy growth-stage business. A 1x ratio means the company recovers acquisition cost but creates no margin. A 2x ratio is marginal. A 3x ratio means each customer creates t...