The Metrics That Drive Business Decisions
Most business failures aren't caused by bad products — they're caused by not understanding the unit economics. These four metrics tell you whether your business model actually works, and where to focus improvement efforts.
Customer Acquisition Cost (CAC)
CAC = Total Sales & Marketing Spend / New Customers Acquired Include everything: ad spend, sales salaries, marketing tools, content costs, agency fees.
CAC varies wildly by industry. B2B SaaS averages $200-500 per customer. E-commerce averages $30-50. Financial services can exceed $1,000. The key isn't the absolute number — it's the relationship to LTV.
Customer Lifetime Value (LTV)
LTV = ARPU × Gross Margin % × Avg. Customer Lifespan (months) ARPU = Average Revenue Per User per month. Gross Margin excludes COGS but includes delivery costs.
The LTV:CAC Ratio
| LTV:CAC | Interpretation | Action |
|---|---|---|
| Below 1:1 | Losing money per customer | Fix immediately or shut down |
| 1:1 to 3:1 | Viable but inefficient | Optimize acquisition or retention |
| 3:1 to 5:1 | Healthy business | Target zone for most companies |
| Above 5:1 | Underinvesting in growth | Spend more on acquisition |
Churn Rate: The Silent Killer
Churn is the percentage of customers who leave in a given period. It's the most underestimated metric because churn compounds. At 5% monthly churn, you lose nearly half your customers every year. Even at 2% monthly, you lose 21% annually.
Reducing churn by just 1% often has a bigger impact on revenue than acquiring 10% more customers. Retention is almost always more cost-effective than acquisition.
ROAS: Measuring Ad Efficiency
Return on Ad Spend tells you how much revenue each dollar of advertising generates. But ROAS alone doesn't tell you if you're profitable — you need to account for your product margins, fulfillment costs, and overhead.
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