The question every investor is really asking: does each customer make you money?
Unit economics is a fancy term for a simple idea. When you get one customer, do you make more money from them than it costs to get them? If yes, your business can scale. If no, growing just means losing money faster.
At its core, you only need to understand two numbers.
CAC is how much you spend to get one new customer. Add up everything you spend on sales and marketing in a month, then divide by the number of new customers you got that month. If you spent £10,000 and got 100 customers, your CAC is £100.
Be honest about what goes into this number. It's not just your ad spend. It includes salaries for salespeople, software tools, agency fees, and anything else that exists to bring customers through the door.
LTV is how much revenue one customer generates over the entire time they stay with you. For a subscription business, a simple version is: average monthly revenue per customer, multiplied by how many months they typically stay. If a customer pays £50 per month and stays for 24 months, their LTV is £1,200.
For a more precise calculation, you'd factor in your gross margin — revenue minus the direct costs of serving that customer. A £50/month customer with 80% gross margin has a gross-margin-adjusted LTV of £960 over those 24 months.
Investors look at LTV divided by CAC. This tells them how efficiently you turn marketing spend into long-term revenue.
The widely accepted benchmark is 3:1. For every £1 you spend acquiring a customer, you should get at least £3 back over their lifetime. Below 3:1 and you're spending too much to acquire customers. Above 5:1 and you might actually be underinvesting in growth.
Payback period is the other number investors like. How many months does it take to earn back what you spent acquiring a customer? Under 12 months is strong. Under 6 months is excellent. Over 18 months and investors start to worry about how much cash you'll burn before the economics kick in.
At pre-seed and seed stage, it's completely normal for your unit economics to be upside down. You're still figuring out your acquisition channels, your pricing, and your retention. Investors know this.
What they want to see is that you understand the numbers, you know what needs to improve, and you have a credible plan to get there. Saying "our CAC is £200 and our LTV is £150, but here's how we're bringing CAC down" is vastly better than not knowing the numbers at all.
If you're not a subscription business, unit economics still applies. For a marketplace, your unit might be a transaction. For e-commerce, it might be an order. The principle is the same: does the revenue from one unit exceed the cost of getting it?
A founder who can say: "Our CAC is £85, our LTV is £340, giving us a 4:1 ratio with a 5-month payback period. Our main lever for improving this is reducing churn, which we're doing by..." That's the kind of clarity investors want to hear.
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Try the funding finder →This is general information, not financial or legal advice. Always do your own research and seek independent professional advice.