Unit Economics Calculator

This calculator answers whether the thing your business does repeatedly actually makes money, which is a different question from whether the business as a whole is profitable. It takes one unit, being either a single job or a single customer depending on the mode you choose, and works out what it earns and what it costs across its whole life. Revenue less direct cost less servicing cost gives the contribution margin, which is what the unit contributes towards your fixed costs and profit. Multiply that by how often a customer buys and how long they stay and you have lifetime value. Set that against what it costs to win them and you have the LTV to CAC ratio, which tells you whether customers are worth more than they cost, and the payback period, which tells you how long your cash is out before you get it back. The payback figure is usually the more important of the two, because a healthy ratio delivered slowly still starves a growing business of cash. The mode switch matters: a trades business where each job stands alone should look at per-job economics, while a business with genuine repeat purchase should look per-customer, because the cost of winning that customer is spread across every sale they ever make. Figures are indicative planning estimates, not accounting records.

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Why One Unit Matters More Than The Whole Business

A profit and loss statement tells you what happened. Unit economics tells you what will happen if you do more of it. That is a far more useful thing to know, because almost every decision a growing business makes is a decision to do more of something.

The logic is unforgiving in both directions. If a single unit contributes positively, then volume eventually solves the business: enough units will cover the fixed costs and everything after that is profit. If a single unit contributes negatively, volume destroys the business, and it does so faster the better your sales team is. Businesses do fail this way, growing enthusiastically into insolvency, and the warning was always visible in the unit economics.

Contribution Margin Is Broader Than Gross Margin

Gross margin deducts cost of goods sold. Contribution margin deducts every cost that varies with the unit, which is a wider net. Payment processing fees, delivery, the support call that follows every third sale, the warranty callback, the account manager's time: none of these are usually in cost of goods sold, and all of them scale with volume.

In the worked example, revenue of $850.00 less $460.00 of direct cost gives a gross margin of $390.00. Deducting the $40.00 of servicing brings the contribution to $350.00, or 41.18% of revenue. That $40.00 looks trivial on one sale. Across a thousand sales it is $40,000, which for many small businesses is the difference between a good year and a bad one.

The rule of thumb is simple: if the cost goes up when you sell one more, it belongs in contribution margin.

Lifetime Value Should Be Built On Margin, Not Revenue

This is the single most abused number in small business finance. It is common to see lifetime value quoted as revenue per purchase multiplied by purchases multiplied by years, producing an enormous figure that is then compared against acquisition cost to justify almost any level of marketing spend.

That comparison is meaningless. Revenue is not available to pay for customer acquisition, because most of it is already committed to delivering the product. Only the contribution is available. On the defaults, revenue-based LTV would be $850.00 times 2.4 times 3.5, which is $7,140.00. The honest figure, built on the $350.00 contribution, is $2,940.00. Both are arithmetically correct and only one of them can be spent.

Worked Example: A 13 To 1 Ratio That Suggests Underspending

Take the defaults. Contribution per purchase is $350.00. At 2.4 purchases a year that is $840.00 of contribution annually, and over a 3.5 year lifespan the lifetime value is $2,940.00. It costs $220.00 to win that customer, so the lifetime profit is $2,720.00 and the LTV to CAC ratio is 13.36 to 1.

The instinct is to call that excellent. It is more likely to be a signal that the business is not spending enough on acquisition. A ratio that high usually means there are customers available at a higher acquisition cost who would still be comfortably profitable, and the business is leaving them to competitors. If you could win customers at $500.00 each instead of $220.00, the ratio would fall to 5.88 to 1, which is still strong, and you would presumably win a great many more of them.

Payback supports the same conclusion. Monthly contribution is $840.00 divided by twelve, which is $70.00, so $220.00 of acquisition cost is recovered in 3.14 months. Cash comes back quickly, which means the business can afford to fund more acquisition without external finance.

Meanwhile fixed costs of $18,000.00 a month require $18,000.00 divided by $350.00, or 51.4 units a month, to break even, which is $43,714.29 of revenue. Every unit beyond 51.4 adds its full $350.00 to profit.

Payback Period Is The Constraint, Not The Ratio

The LTV to CAC ratio measures whether a customer is worth winning. Payback measures whether you can afford to win them now. Those are different questions and the second one is what actually limits growth.

Consider two businesses with an identical 4 to 1 ratio. One recovers its acquisition cost in three months, the other in twenty. The first can reinvest each customer's contribution into winning the next one, roughly four times a year, and can grow from its own cash. The second has twenty months of outflow before any given customer becomes cash positive, so growth has to be funded from savings, an overdraft or investors. Same ratio, completely different businesses.

As a practical guide, a payback under twelve months usually means growth can be self-funded. Beyond that, the faster you grow the more cash you consume, which is the mechanism our cash conversion cycle calculator traces through the working capital side of the business.

Per-Job Or Per-Customer

The mode switch is not cosmetic. In a trades or project business, most customers buy once, the sale is largely won on the job rather than on the relationship, and spreading acquisition cost across an imagined lifetime of repeat work is wishful. Per-job mode strips out frequency and lifespan and asks the blunt question: did this transaction, on its own, cover its acquisition cost and contribute?

In a business with genuine repeat purchase, the opposite is true. Judging a customer on their first transaction alone will make acquisition look unaffordable and lead you to underinvest in winning customers who would have been valuable. There the per-customer view is the honest one.

If you are unsure which applies, look at your own data rather than your intentions. If fewer than half your customers ever buy a second time, you are a per-job business regardless of what the strategy document says.

Where These Numbers Go Wrong

Three inputs cause most of the trouble. Acquisition cost is usually understated, because owners count advertising invoices and not their own selling time. If you spend two days a week quoting, that time is the largest part of your CAC. Lifespan is usually overstated, particularly by young businesses that have not existed long enough to observe a customer leaving. And servicing cost is frequently missed entirely, because it arrives as scattered hours rather than as an invoice.

All three errors push in the same direction, which is to make the economics look better than they are. If you only have the appetite to measure one properly, measure acquisition cost, including your own time, because it is both the largest error and the one you control most directly.

Related NZ Business Metrics Calculators

• Contribution Margin Calculator: the same margin measure in more depth, including multi-product mixes.
• LTV Calculator: lifetime value on its own, with retention and churn detail.
• CAC Calculator: build a properly costed customer acquisition figure to use above.
• CAC Payback Calculator: payback period in detail, including cohort effects.
• Break-Even Calculator: the whole-business version of the unit volume calculation above.