Unit Economics

Is growth worth what it costs?

Growth is only attractive if it's economically attractive, if each new customer is worth more than it costs to acquire them. CAC (customer acquisition cost) is the fully-loaded cost of sales and marketing to land one new customer. LTV (lifetime value) is the gross profit expected from that customer over the time they stay. CAC payback period asks a more practical version of the same question: how many months of revenue does it take just to earn back what was spent acquiring this customer?

Margin, not just revenue

Gross margin is revenue minus the direct cost of delivering the product (hosting, support), as a percentage. Contribution margin goes one step further, subtracting the variable costs of acquiring a customer too, the number that actually answers "does growth pay for itself?"

• Meridian: CAC £18,000 per new store-chain customer, average customer worth ~£75,000/year in gross profit
• LTV:CAC comfortably above 3:1, and CAC payback under 14 months

Healthy by SaaS standards; a much weaker ratio would have been a reason to pause before Lesson 12's checkpoint, regardless of how attractive the growth rate looked on its own.