Product metrics. Part 14. Unit Economics Metrics

 


Unit Economics Metrics

1. Customer Lifetime Value (CLTV or LTV)

Definition: Total revenue a customer generates during their lifecycle.
Formula:
CLTV = ARPU × Average Customer Lifespan (months or years)

Examples:

  • Subscription SaaS: ₹1,000/month × 24 months →
    = ₹24,000 LTV
  • Meal Kit Service: ₹500/month × 18 months → ₹9,000.
  • Online Coaching: ₹3,000/month × 12 months → ₹36,000.

2. Customer Acquisition Cost (CAC)

(Covered earlier but crucial in unit economics)
Used to calculate LTV:CAC ratio.

3. LTV : CAC Ratio

Definition: Ratio of customer value to acquisition cost.
Formula:
LTV:CAC = CLTV / CAC

Examples:

  • EdTech Platform: LTV ₹12,000, CAC ₹3,000 →
    = 4:1 (very healthy)
  • Fitness App: LTV ₹6,000, CAC ₹2,000 → 3:1.
  • E-comm Subscription: LTV ₹8,000, CAC ₹4,000 → 2:1.

Ideal benchmark: 3:1 or higher.

4. Contribution Margin per Unit

Definition: Revenue minus variable costs per unit.
Formula:
CM = Revenue per Unit – Variable Cost per Unit

Examples:

  • Snack Brand: ₹40 sale – ₹25 cost →
    = ₹15 CM
  • Digital Course: ₹500 – ₹50 delivery cost → ₹450 CM.
  • Online Tools: ₹2,000 license – ₹500 infra cost → ₹1,500 CM.

5. Gross Margin %

Definition: Percentage of revenue left after direct costs.
Formula:
Gross Margin % = (Revenue – COGS) / Revenue × 100

Examples:

  • Clothing Brand: ₹1,000 sale, ₹600 cost →
    (1000–600)/1000 = 40% GM
  • SaaS Product: ₹5L revenue, ₹1L infra → 80%.
  • Subscription Food Box: ₹2,000 – ₹1,400 → 30% GM.

6. Break-even Point (Units)

Definition: Units needed to cover fixed + variable costs.
Formula:
Break-even = Fixed Costs / Contribution Margin per Unit

Examples:

  • Online Course: ₹1L fixed cost, ₹500 margin →
    = 200 units
  • Handmade Soap Biz: ₹50,000 fixed, ₹50 margin → 1,000 units.
  • Logistics SaaS: ₹5L cost, ₹2,000 margin → 250 users.

7. Retention-adjusted LTV

Definition: CLTV factoring churn.
Formula (Monthly):
CLTV = ARPU / Monthly Churn Rate

Examples:

  • Cloud Storage: ₹1,000 ARPU, 5% churn →
    = ₹1,000 / 0.05 = ₹20,000
  • Streaming App: ₹500, 10% churn → ₹5,000.
  • CRM Tool: ₹2,000 ARPU, 8% churn → ₹25,000.


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