LTV/CAC is a Lie

In early stage startups, LTV (Lifetime Value) is theoretical. You haven't been alive long enough to know the lifetime of a customer. Founders often plug in "3 years" as a lifespan, get a glowing 5:1 LTV/CAC ratio, and scale. Then they go bankrupt.

Why? Cash flow latency.

Payback Period > LTV

The most important metric in Unit Economics is CAC Payback Period. If it costs you $500 to acquire a customer who pays you $50/month:

• Payback Period = 10 months.

This means you are losing money on that customer for nearly a year. If you aggressively scale ads, you will drain your bank account before the cohorts become profitable.

Rule of Thumb:

• < 6 months: Incredible. Spend as much as possible.
• 6-12 months: Healthy.

• 12 months: Dangerous unless you are VC funded with deep pockets.

The Magic Number

The "SaaS Magic Number" measures sales efficiency:

Magic Number = (Current Quarter Subscription Revenue - Previous Quarter Subscription Revenue) / Previous Quarter Sales & Marketing Expense

• > 1.0: Your sales engine is efficient. Pour fuel on the fire.
• < 0.7: Something is broken. Do not scale. Fix the product or the pitch.

Blended Churn

Beware of "Blended Churn." If you have 100 SMB customers churning at 5% and 1 Enterprise customer churning at 0%, your "average" churn looks okay. But if that Enterprise customer leaves, you die. Always segment your unit economics calculator by customer type (SMB vs Enterprise).

Use the Unit Economics Modeler to stress test your assumptions. If you input a 10% monthly churn (common for early stage B2C), you will see that LTV collapses to near zero. The math is brutal, but honest.