Unit Economics
Version 1.0.0 · Updated 2026-07-30
CORE DEFINITION
The golden formula for measuring whether a business model is sustainable. LTV (Customer Lifetime Value) is the customer lifetime value, and CAC (Customer Acquisition Cost) is the customer acquisition cost. A healthy model typically requires LTV:CAC > 3:1.
SCAFFOLDING EFFECT
Reduce cognitive load
- Burn brake: If the ratio is less than 1, it means the more you sell, the more you lose (losing money on each sale). - Growth accelerator: If the ratio is greater than 5, you are too conservative and should significantly increase marketing investment to capture market share.
Anchor fast decisions
Whether a business model is sustainable depends on the ratio of the profit earned from each customer (LTV) to the cost of acquiring that customer (CAC). When LTV:CAC > 3:1, it is generally considered healthy and scalable; < 1 indicates a loss on each acquisition (losing money on each sale); too high (e.g., >5:1) means insufficient growth investment and wasted market opportunities. The essence is the break-even point thinking of unit economics: the lower the ratio, the more you need to 'brake' to control costs; the higher the ratio, the more you should 'step on the gas' to capture the market.
MINIMUM ACTION
In progress 0/4Practice this model in one real situation:
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Source support: Explicit
- en.wikipedia.orghttps://en.wikipedia.org/wiki/Consumer_unit_%28economics%29verified
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