Presentations · Glossary
What is unit economics?
Unit economics describes the revenue and costs attached to a single unit of a business, usually one customer or one order. The core numbers are the cost to acquire a customer, the margin they contribute each month, how long they stay, and the months needed to earn back that cost. Together they show whether growth creates or burns value.
A company can grow fast and lose more money with every new customer. Unit economics is the slide that shows which kind of growth an investor is looking at.
Nuwan Madhusanka · Co-founder
5 min read · Published
| Number | How it is worked out | Worked example (a fictional water test subscription) |
|---|---|---|
| CAC, customer acquisition cost | Sales and marketing spend in a period divided by new customers won in it | $61 blended cost per new subscriber |
| Contribution per month | Monthly revenue per customer minus the variable costs of serving them | $29 subscription less cost of goods and shipping = $19.72 |
| Payback period | CAC divided by monthly contribution | $61 divided by $19.72 = 3.1 months |
| LTV, lifetime value | Monthly contribution multiplied by expected lifetime in months | $19.72 x 22 months = $434 |
| LTV to CAC | Lifetime value divided by acquisition cost | $434 divided by $61 = about 7 to 1 |
One customer, fully costed
The idea is to shrink the business to its smallest repeatable transaction and ask whether it makes money. For a subscription, the unit is a customer; for a marketplace, often an order; for a hardware company, a device sold with its service plan. Revenue from that unit is compared with the cost of winning it and the variable cost of serving it. If one unit is profitable, and the profit arrives quickly enough, spending more to acquire units is a sound use of investment. If it is not, growth only enlarges the loss. That is why investors ask for unit economics before they look closely at a growth chart.
The definitions that matter
Andreessen Horowitz's widely cited list of sixteen startup metrics defines lifetime value as the present value of the future net profit from a customer over the duration of the relationship, and warns that a common mistake is estimating it from revenue or gross margin rather than net profit. It recommends contribution margin as the basis for lifetime value, which is why the table above works from contribution per month. Customer acquisition cost should be blended, including salaries and tools in sales and marketing, not only advertising spend, and payback is simply how many months of contribution it takes to recover that cost.
How the slide is used
In a pitch deck, unit economics usually follows traction, answering the question the growth chart raises: is this growth healthy. A strong slide shows three to five numbers large enough to read, each with its definition, and one short line explaining where the lifetime assumption comes from, ideally cohort data. The best versions let the numbers reconcile on the slide itself, so a reader can divide acquisition cost by monthly contribution and arrive at the stated payback. Y Combinator's seed deck template treats the business model as important even at seed stage and tells founders to lay it out, adding slides if something complicated needs space.
Common mistakes
The first is lifetime value built on revenue instead of contribution, which can overstate it several times over. The second is a lifetime assumption with no evidence, such as a five year customer life for a product launched eighteen months ago. The third is acquisition cost counting only paid ads while founders do the selling for free, which collapses when the first sales hire arrives. The fourth is averaging across very different channels, so a cheap referral channel hides an expensive paid one. The fifth is numbers that do not reconcile with each other or with the financial model in the data room, which a careful investor will check.
When unit economics are not yet known
Very early companies rarely have enough customers or history to measure lifetime value honestly. In that case, show what is known, such as price, gross margin and early acquisition costs from pilots, and state the assumption for everything else plainly. An investor would rather see a clearly labelled estimate with its reasoning than a precise figure with nothing behind it. As cohorts mature, replace assumptions with measurements and say so in the next update.
Where it shows up in the product
The seed pitch deck example on this site carries a unit economics slide whose figures reconcile: a $61 acquisition cost, $19.72 of monthly contribution, a 3.1 month payback and a 22 month modelled life giving a $434 lifetime value, supported by a cohort churn chart on the slide before it. The generator fills in plausible figures when a brief has none, so supply your real inputs and check that they still reconcile on the slide. Metrics templates hold a few large figures with captions; a table slot can grow to 20 rows and 8 columns for a per order breakdown; and the editable PowerPoint export turns tables and most charts into native objects a finance team can check.
Questions people ask
What is a good LTV to CAC ratio?
A ratio of about three to one is often quoted as healthy for subscription businesses, meaning a customer returns three times what it cost to win them. Treat it as a rule of thumb rather than a law. A very high ratio can mean the company is under investing in growth, and payback time matters as much as the ratio.
Is unit economics the same as gross margin?
No. Gross margin is revenue minus cost of goods across the whole business. Unit economics goes further for a single customer or order, adding acquisition cost and the length of the relationship. A business can have a strong gross margin and weak unit economics if customers are expensive to win and leave quickly.
How do I calculate payback period?
Divide customer acquisition cost by the monthly contribution each customer generates after variable costs. A $600 acquisition cost and $50 of monthly contribution gives a twelve month payback. Use contribution rather than revenue, or payback looks much shorter than it is, and state the period the acquisition cost was measured over.
Where does the unit economics slide go in a pitch deck?
Usually right after traction, because it answers whether the growth just shown is profitable growth. In some decks it sits with the business model slide instead. Either position works as long as the reader meets it before the ask, since the use of funds only makes sense once the economics of each customer are clear.
What if my unit economics are negative today?
Say so, and show the path to positive: which cost falls with scale, which price rises, or which channel gets cheaper, with evidence where you have it. Investors fund negative unit economics when there is a credible reason they will turn. They are much less forgiving of negative economics that the deck tries to hide.
Make one with presentations
The button opens the generator with this use case already described. Change the wording to match your own.
Create a presentation with OneCraftRelated questions
- What is TAM, SAM and SOM?TAM, SAM and SOM are three nested market sizes: everything, what you can serve, and what you can win. A worked example, both methods, and the slide itself.
- What is traction in a startup pitch?Traction is evidence that people want what a startup sells: revenue, growth, retention, or before revenue, pilots and waitlists. What counts at each stage.
- What is a hockey stick chart?A hockey stick chart shows a long flat line that suddenly turns steeply upward. Why forecasts drawn that way are doubted, and what makes the curve credible.
Step by step in the builder: Make a pitch presentation with AI.
Written and checked by the OneCraft team. Last checked .