Learn SaaS unit economics vocabulary: LTV, CAC, payback period, gross margin, and ARPU/ARPA.
0 / 5 completed
1 / 5
Customer Acquisition Cost (CAC) is calculated as:
CAC = Sales & Marketing spend / New Customers. It measures how much it costs to acquire one new customer — a key input for unit economics viability.
2 / 5
LTV (Lifetime Value) represents:
LTV (or CLV) is the total expected revenue from a customer — typically calculated as ARPU x Gross Margin x Average Customer Lifetime.
3 / 5
A healthy LTV:CAC ratio for a SaaS business is typically:
The SaaS industry benchmark is LTV:CAC > 3:1 — the customer generates at least 3x the acquisition cost. Below 3:1 suggests the business model may not be sustainable.
4 / 5
CAC payback period measures:
CAC payback period = CAC / (ARPU x Gross Margin). It tells you how many months of revenue are needed to recover what was spent acquiring the customer — shorter is better.
5 / 5
Gross margin in SaaS measures:
SaaS gross margin = (Revenue - COGS) / Revenue. COGS for SaaS includes hosting, support, and third-party costs. High gross margins (70-80%+) are typical for software businesses.