Unit Economics Model Template

For a subscription business the unit is usually a customer. Start with three exports: billing records with each customer's first paid date, monthly sales and marketing spend line by line from your general ledger, and monthly cost of revenue. A single sales and marketing total forces one definition on you and hides the lines that serve existing customers.

Measure recovery in gross profit, never revenue. Bessemer Venture Partners, a venture capital firm, measures CAC payback against gross margin-adjusted recurring revenue¹, because the variable costs of selling cloud software never become profit.

CAC has no standard formula. Andreessen Horowitz says it should be the full cost of acquiring users, stated on a per user basis², and notes how much CAC figures vary. Before you divide anything, sort every spend line into one of three buckets.

If your commission plan pays different rates for new and renewal deals, take the split from your commission calculations.

Divide by new customers only, counted on their first paid subscription. Upsells and trials that never converted don't count. In 2021 the SEC staff asked Warby Parker whether its CAC, measured against active customers rather than new ones, matched how the term is commonly understood in the industry³. It also asked what acquiring new customers had cost.

Then work out one quarter's CAC every defensible way. In the template's sample, seven definitions give CACs from $4,672 to $61,820 on the same books. Choose one, note what it leaves out and why, and reconcile it to the sales and marketing line on your income statement.

Treat that choice like an accounting policy. SEC guidance from 2020 says a public company that changes how it calculates a key metric should consider explaining the change and whether to recast earlier periods⁴. Do the same: when your definition changes, recompute every earlier quarter.

A cohort is every customer whose first paid subscription started in the same quarter. Its CAC is that quarter's acquisition spend divided by the customers it won. From billing records, add up their gross profit month by month. The payback month is the first month the running total covers the CAC.

Keep customers who cancel in their cohort, or it describes only survivors. Never merge cohorts or move customers between them. Show each cohort's size and age, so a row with 11 customers and four months of history reads as thin.

Report every cohort, not just the best one. Clear Secure's draft IPO filing showed LTV to CAC for members who joined in 2019. In 2021 the SEC staff asked it to add earlier years if there had been a material trend⁵.

Build LTV from the cohort curves over a fixed window, such as 36 months, not from a formula that divides by churn and runs forever. With little history, Andreessen Horowitz prefers to measure 12-month and 24-month LTV² rather than predict how long customers will stay.

Name the margin as well. The same firm calculates LTV on contribution margin. It warns that LTV on revenue or even gross margin suggests a higher upper limit on what you can spend² on acquisition. Whichever basis you use, write it into the definition.

Publish both amounts under every ratio. In 2019 the SEC staff asked Chewy to provide the CAC and LTV amounts per customer, per period⁶, not just the ratios. A ratio on its own can't be checked.

Test the levers on the cohort you're acquiring now, not the average. Move one at a time: acquisition spend, opening price, gross margin and monthly retention. For retention, use a level an earlier cohort actually reached, so the case is something your business has done before.

Then combine price and retention, since neither needs a budget cut. The levers pull on each other: the venture capitalist Bill Gurley wrote that raising price will naturally increase churn⁷, and that spending more to grow pushes acquisition cost up.

Label every case as a projection, never as history. Model any price rise for existing customers separately, and prepare the message with a price increase communication plan.

A cohort that takes years to pay back needs cash to carry it, so test the result in a cash runway scenario analysis. When the numbers go to investors, the investor update financials tool adds a note defining each one. The template at the top of this page does the same work faster in River: it settles your CAC definition with you, then builds cohorts from your exports.