wunder beta📘 CAC/LTV: Analytics
Customer Acquisition Cost (CAC) is the total cost of winning one new customer over a period: total acquisition spend divided by the number of new customers acquired. The discipline is in what you count.
What you’ll learn
- Defining CACDistinguish paid-only, blended, and fully-loaded CAC and compute CAC payback period correctly using gross-margin dollars.CAC is total acquisition spend divided by new customers, but the definition you choose changes the story: paid-only isolates a channel's marginal cost, blended captures the whole engine including organic, and fully-loaded adds S&M salaries, tools, and overhead for true unit economics. The denominator must match the numerator in time and definition, or growth periods will distort the figure. CAC is only meaningful paired with the value a customer returns. CAC payback period — CAC divided by monthly gross-margin dollars — measures how fast that money comes back, with strong SaaS businesses recovering in roughly 5-7 months and over ~12 months a warning sign.
- Modeling LTVCompute LTV with the standard gross-margin model and the contribution-margin variant, and explain why margin, retention, cohorts, and estimation limits shape the result.Lifetime value estimates the total margin a customer generates before churning. The standard SaaS form is (ARPA × gross-margin %) / churn, where 1/churn is the average customer lifetime; transactional businesses use a contribution-margin variant with the same value-per-period × lifetime structure. Because churn sits in the denominator, retention is the most powerful lever, while gross margin scales LTV linearly — which is why margin and net retention dominate. Cohort-based LTV exposes differences that blended averages hide, and every LTV is a forecast vulnerable to survivorship bias, undiscounted future cash, and stale inputs. The LTV:CAC ratio (~3:1 per David Skok's widely-cited heuristic) summarizes whether the unit economics work, but it is a rule of thumb, not a law.
- Guided Project: CAC/LTV Model + Go/No-Go Memo (Case Memo)Build an auditable CAC/LTV model from stated assumptions, stress-test it, and write a decision-grade go/no-go case memo.This project turns the formulas into a decision. Starting from explicit inputs and sourced assumptions for a sample SaaS case, you compute LTV with the gross-margin formula ($3,750), then the LTV:CAC ratio (~3.1:1) and CAC payback (~10.7 months), always keeping margin (not revenue) in the math. You stress-test the assumptions most likely to be wrong — raising churn or CAC — to see whether the go/no-go verdict survives plausible error; when it flips easily, the honest answer is a conditional pilot. The deliverable is a one-page memo that leads with the recommendation, shows the metrics, names assumptions and sources, flags the load-bearing assumption, and proposes a measurable next step. The real skill is communicating how much to trust the numbers.
Questions this course answers
A startup reports a CAC of $40 that counts only its paid ad spend divided by paid-channel customers. Its CFO wants the figure that best reflects true unit economics for a board deck. What is missing?
Fully-loaded CAC adds S&M salaries, tools, contractors, and overhead to media spend, giving the truest unit-economics view. Paid-only CAC omits these (option A is wrong). LTV is a separate metric, not folded into CAC (B), and COGS belongs in gross margin, not CAC (C).
A company with strong word-of-mouth shows a blended CAC of $25 but a paid CAC of $90. A marketer concludes acquisition is cheap and proposes tripling the paid budget. What is the flaw?
Blended CAC mixes in free organic and referral customers, so it understates what it costs to BUY a customer; the marginal decision rests on the $90 paid CAC. They are not expected to be equal (A), blended is lower not higher than paid here (B), and scaling spend often raises, not lowers, paid CAC (D).
During a high-growth quarter a team divides this month's rapidly rising ad spend by this month's new signups. Much of that spend acquires customers who won't actually convert until next month. What happens to the CAC figure, and why?
When growing spend in the numerator is matched against a denominator missing the customers it will convert next month, per-customer cost is inflated — CAC is overstated during growth. The denominator is too small, not too large (B), spend and conversions are not simultaneous here (C), and timing clearly does affect the ratio (D).
A SaaS account pays $300/month at 70% gross margin with 5% monthly churn. Using the standard LTV formula, what is the customer's lifetime value?
LTV = (ARPA × gross-margin %) / churn = ($300 × 0.70) / 0.05 = $210 / 0.05 = $4,200. Option A ($6,000) wrongly uses revenue instead of margin ($300/0.05). Option C and D drop or misapply the lifetime (1/churn = 20 months) step.
Two SaaS companies have identical $200 ARPA and identical 2% monthly churn, but Company A runs 80% gross margin and Company B runs 40%. How do their LTVs compare?
Gross margin is a linear multiplier in the numerator, so doubling it (40%→80%) doubles LTV: A = $8,000 vs B = $4,000. Margin matters even with equal ARPA and churn (option A is wrong), lower margin reduces value (B), and margin is linear, not squared (C).
An analyst must model LTV for an ecommerce business with repeat purchases rather than subscriptions. Which adaptation of the standard approach is most appropriate?
Transactional businesses use a contribution-margin form: contribution margin per purchase × frequency / churn (equivalently per-period margin × retained periods), keeping the same value-per-period × lifetime structure. Ignoring variable costs (A) inflates value, the structure does adapt (B), and a one-year profit average (D) ignores retention entirely.
Grounded in trusted sources
- Harvard Business Review, The Economics of Customer Acquisition, https://hbr.org/
- ProfitWell / Paddle, LTV and CAC benchmarks documentation, https://www.paddle.com/blog/ltv-cac
- U.S. Small Business Administration, Understanding your customers, https://www.sba.gov/
- Khan Academy, Introduction to business metrics concepts, https://www.khanacademy.org/economics-finance-domain
Every Wunder lesson is built from real, reputable sources — never invented.
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