Welcome to the ultimate business test! Unit economics reveal whether your local business model actually works. This simple calculation separates real businesses from expensive hobbies.
Every successful business passes this fundamental test.
Engagement Message
Are you ready to learn the most important formula in business?
Unit economics asks one critical question: Does the money you make from each customer exceed what it costs to get them?
If yes, you have a viable business. If no, you have a money-losing machine disguised as a business.
Give one reason this comparison matters for business success.
Customer Lifetime Value (LTV) is the total money one customer will pay you over their entire relationship with your business.
For a neighborhood coffee shop where customers spend $8 per visit and visit 40 times per year, LTV = $8 × 40 = $320 annually.
Engagement Message
What's the annual LTV if customers spend $12 per visit and visit 30 times per year?
Customer Acquisition Cost (CAC) is how much you spend on marketing and outreach to get one new customer.
If you spend $100 sponsoring a community event and get 10 new regular customers, your CAC = $100 ÷ 10 = $10 per customer.
Engagement Message
If you spend $200 on local advertising and get 20 customers, what's your CAC?
The magic formula is simple: LTV must be greater than CAC. If you make $320 per customer but spend $10 to get them, you profit $310 per customer.
This $310 covers your other costs and hopefully leaves profit for growth.
Engagement Message
What happens if your CAC exceeds your LTV?
