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Formula, in Unit Economics

Unit Economics Formula

Unit economics weighs what a customer is worth against what they cost to win. This calculator estimates lifetime value from monthly ARPU, gross margin, and average lifespan, then divides it by customer acquisition cost to give the LTV:CAC ratio that shows whether the model can scale.

5 variables. Published Mar 12, 2026. Updated Mar 27, 2026. By AI Biz Hub.

Formula
LTV = Monthly ARPU x Gross Margin % x Avg Lifespan; LTV:CAC = LTV / CAC

Variables

LTV

Lifetime Value

The gross-margin profit one customer generates over their expected lifespan, in currency units. The headline output, compared against acquisition cost.

ARPU

Monthly ARPU

Average revenue per user each month, in currency units. Multiplied by the gross margin to get the monthly contribution the calculator carries into LTV.

GM

Gross Margin %

The share of revenue left after variable delivery costs, as a percent. Only this portion of ARPU funds acquisition and profit.

L

Avg Lifespan Months

How many months the average customer stays, as a number. Longer lifespans raise LTV; the tool flags it if your churn rate implies a shorter one.

CAC

Customer Acquisition Cost

The fully loaded cost to win one customer, in currency units. The denominator of the LTV:CAC ratio; a ratio at or above 3 is the usual health bar.

Step by step

  1. 1

    Set the baseline case with the real calculator inputs.

    CAC = $150, Monthly ARPU = 49, Gross Margin Percent = 75.0%, Avg Lifespan Months = 24

  2. 2

    Turn revenue into monthly contribution by applying the gross margin to ARPU, since only the margin portion covers acquisition and profit.

    A $49 ARPU at a 75% gross margin gives a $36.75 monthly contribution.

  3. 3

    Apply the formula and read the first calculator outputs, not just the headline assumption.

    The calculator lands with ltv at $882 and monthly contribution at $36.75.

  4. 4

    Divide lifetime value by CAC to read the LTV:CAC ratio, and check the payback months so a strong ratio is not hiding slow cost recovery.

    An $882 LTV against a $150 CAC is a 5.88 LTV:CAC ratio, with CAC paid back in about 4.1 months.

Worked example

Unit Economics sample case

CAC

$150

Monthly ARPU

49

Gross Margin Percent

75.0%

Avg Lifespan Months

24

Contribution Margin = Revenue Per Unit - Variable Cost Per Unit using cac $150, monthly ARPU 49, gross margin percent 75.0%, avg lifespan months 24.

The calculator lands with ltv at $882 and monthly contribution at $36.75.

Common variations

Scenario variants are useful because fixed assumptions rarely survive contact with real life unchanged.
Use Unit Economics Calculator to compare the baseline result with one stressed case before relying on a single answer.

Run the numbers next

Sources

  1. Unit Economics , Investopedia
  2. Startup CEO: A Field Guide to Scaling Up Your Business , Wiley (Matt Blumberg)

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