Unit Economics & COGS Calculator

Unit economics tells you whether you make or lose money on each customer. It's the single most important metric for investor diligence — and for knowing whether your business model actually works. Every startup should know their gross margin, LTV, and CAC before raising institutional capital.

Gross margin

Revenue minus direct costs (COGS), as a percentage of revenue. SaaS companies target 70–85%. Low gross margins (<40%) make it very hard to build a profitable business.

LTV (Customer Lifetime Value)

The total gross profit you earn from a customer over their entire relationship with you. LTV = Gross profit per month ÷ Monthly churn rate. A customer paying ₹5,000/mo with 5% monthly churn has an LTV of ₹5,000 / 0.05 = ₹1,00,000.

CAC (Customer Acquisition Cost)

Total sales and marketing spend divided by new customers acquired. Every rupee spent on sales, advertising, and marketing divided by how many new customers that spend brings in.

LTV:CAC ratio

The golden metric. LTV divided by CAC. A healthy SaaS business targets 3× or higher. Below 1× means you spend more to acquire a customer than they'll ever pay you back — an unsustainable business.

What constitutes a healthy LTV:CAC ratio depends on your stage and business model:

• <1× — Unsustainable. You lose money on every customer. Fix unit economics before scaling.
• 1–3× — Needs improvement. Focus on reducing CAC or increasing LTV via retention or pricing.
• 3–5× — Healthy. Standard benchmark for venture-backed SaaS. Investors will be comfortable.
• 5–10× — Excellent. Strong moat and efficient growth. Consider increasing growth investment.
• 10×+ — Exceptional. May indicate you're under-investing in growth or your market is very large.

LTV:CAC is a lagging indicator — it takes months or years to measure accurately with actual retention data. Early-stage startups should model it based on churn assumptions and update as real data comes in.

CAC payback period is how many months of gross profit it takes to recover the cost of acquiring a customer. It's a useful complement to LTV:CAC because it measures capital efficiency — how fast you get your acquisition investment back.

CAC payback (months) = CAC ÷ Gross profit per customer per month

For enterprise SaaS, <12 months is strong. For SMB SaaS, <6 months is ideal. A payback period longer than 18–24 months means significant capital is tied up in customer acquisition — you need a lot of funding to grow.

1. Reduce churn — the single highest-leverage action. A 5% to 3% monthly churn reduction doubles your LTV.
2. Increase price — test pricing regularly. A 10% price increase drops straight to gross profit.
3. Reduce COGS — optimise hosting, support automation, and delivery efficiency.
4. Reduce CAC — focus on higher-converting channels, improve your onboarding funnel, and increase self-serve signups.
5. Increase customer density — higher repeat purchases or usage drives LTV without changing price.

The best startups improve BOTH sides simultaneously — growing LTV (via retention and pricing) while reducing CAC (via product-led growth and virality). That's the formula for a 10× LTV:CAC ratio.