Skip to main content
Calkulon

How to Calculate SaaS Unit Economics

What is SaaS Unit Economics?

The SaaS Unit Economics Calculator computes the four most-watched financial health metrics for SaaS businesses: LTV/CAC ratio (customer lifetime value vs acquisition cost), CAC Payback Period (months to recover acquisition spend), Magic Number (sales & marketing efficiency), and Burn Multiple (capital efficiency relative to ARR growth). These metrics are the standard framework VCs use to evaluate SaaS investments and what operators use to gauge whether their go-to-market is healthy.

Formula

LTV = ARPU × Gross Margin / Monthly Churn; LTV/CAC = LTV / CAC; CAC Payback = CAC / (ARPU × Gross Margin); Magic Number = (New ARR × 4) / (Prior Quarter S&M × 3); Burn Multiple = Net Burn / Net New ARR
CAC
Customer Acquisition Cost (currency) — Total S&M spend / new customers acquired
LTV
Customer Lifetime Value (currency) — Expected gross-margin revenue from a customer over their lifetime

Step-by-Step Guide

  1. 1Enter CAC (Customer Acquisition Cost) — total sales & marketing spend divided by new customers
  2. 2Enter ARPU (Average Revenue Per User) monthly
  3. 3Enter Gross Margin % (typically 70-85% for SaaS)
  4. 4Enter monthly churn % (typical 2-5% for SMB SaaS, 0.5-2% for enterprise)
  5. 5For Magic Number and Burn Multiple, enter quarterly New ARR, S&M spend, and net burn
  6. 6Calculator computes LTV using simple formula: ARPU × Gross Margin / Monthly Churn
  7. 7Each metric has health benchmarks color-coded: excellent (green), good (lime), concerning (orange), poor (red)

Worked Examples

Input
CAC $500, ARPU $50/mo, 80% margin, 3% monthly churn
Result
LTV $1,333, LTV/CAC 2.67x (good), CAC Payback 12.5 months (good)
Input
CAC $2,000, ARPU $200/mo, 85% margin, 1% churn
Result
LTV $17,000, LTV/CAC 8.5x (excellent), CAC Payback 11.8 months (excellent)
Input
CAC $1,500, ARPU $30/mo, 75% margin, 5% churn
Result
LTV $450, LTV/CAC 0.30x (unprofitable!), CAC Payback 67 months (very poor)

Common Mistakes to Avoid

  • ✕Using simple LTV formula when churn is high — formula breaks down above 5% monthly churn; use cohort retention curves instead
  • ✕Confusing CAC payback with CAC payback time — payback months counts only when customer revenue equals CAC
  • ✕Forgetting to include all S&M costs — must include marketing tools, sales tools, payroll, commissions, ad spend
  • ✕Reporting blended CAC instead of paid CAC — organic acquisitions skew CAC artificially low

Frequently Asked Questions

What's a good LTV/CAC ratio?

Industry standard: 3x is healthy, 5x+ is excellent, below 1x means losing money on each customer. Most SaaS companies should target 3-4x — going much higher often means under-investing in growth.

How is Magic Number interpreted?

>1 = scale aggressively (S&M is highly efficient). 0.5-1.0 = scale carefully. <0.5 = fix product-market fit before scaling. The metric was popularized by Scale Venture Partners and is now standard at most SaaS VCs.

What's a healthy burn multiple?

Best: <1 (capital-efficient growth). Good: 1-2. Suspect: 2-3. Bad: >3 (burning capital without commensurate ARR growth). Top SaaS startups achieve <1; many established companies operate at 1-2.

Ready to calculate? Try the free SaaS Unit Economics Calculator

Try it yourself →

Settings

PrivacyTermsAbout© 2026 Calkulon