What is a good LTV/CAC ratio for SaaS?

A ratio above 3x indicates healthy unit economics. Above 5x is excellent. Below 1.5x means you are spending too much to acquire customers and need to improve CAC efficiency or increase LTV through retention and expansion.

What is contribution margin and why does it matter?

Contribution margin is ARPU minus the cost of serving that customer (excluding acquisition costs). It represents the gross profit each customer generates per month, which must cover CAC within a reasonable payback period for the business to be sustainable.

How does churn rate affect payback period?

Higher churn means customers leave faster, so you need a shorter payback period to recoup CAC before they cancel. With 5% monthly churn, customers stay about 20 months on average, so payback under 12 months is essential to be profitable.

What is the ideal payback period for SaaS?

Under 12 months is standard for enterprise SaaS. Under 6 months is excellent. For SMB or self-serve products with lower ARPU, up to 18 months may be acceptable. Payback beyond 24 months indicates inefficient acquisition or pricing.

Does ARPU include all revenue from a customer?

ARPU should include all recurring revenue streams including base subscription, usage-based overages, and add-on modules. Exclude one-time fees like setup charges and professional services for a true recurring revenue picture.

How do gross margins affect unit economics?

Higher gross margins mean more of each revenue dollar contributes to covering CAC and operating expenses. SaaS companies typically target 70-85% gross margins. Margins below 50% make it difficult to achieve healthy payback periods.

What MRR benchmarks should I track against?

Compare your MRR growth rate to stage-appropriate benchmarks. Early-stage companies should target 15-25% MoM growth. Growth-stage companies aim for 5-10% MoM. Use MRR in conjunction with unit economics to evaluate growth efficiency.

How often should I review unit economics?

Monthly review is standard for active SaaS companies. Track trends over 3-6 months to identify deterioration early. Quarterly deep dives with cohort analysis help you understand how unit economics evolve as you scale and acquire different customer segments.

Unit Economics Dashboard Calculator

Track your SaaS unit economics with a full dashboard showing LTV/CAC ratio, contribution margin, payback period, MRR, and gross profit per customer.