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Your discount rate is the rate of your return on investment.

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12. Gross margin per customer lifespan (GML)

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12. Gross margin per customer lifespan (GML)

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This is similar to your raw LTV rate, except it only takes the margin into account, rather than total revenue.

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This is your gross profit divided by your total revenue.

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This is simply total revenue divided by the number of orders.

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This is your total revenue minus your cost of sales.

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This is the total amount of money you've made from your customers over the course of the period.

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Not every customer is billed at the same frequency. This metric covers the actual number of transactions that have been made during the period and may not equal the number of customers.

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This is the total number of customers subscribed to your service during the period in question.

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This is the average amount of time a customer stays subscribed before they churn. It is a key component in calculating their lifetime value.

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Retention rate is the opposite of churn. It's the percentage of customers that remain subscribed during a given period.

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Churn rate is the percentage of your customers that cancel their subscription during a given period.

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The total amount of money you spend on sales and marketing to acquire one customer. If you spend too little, you don't get new customers. If you spend too much, you don't get profit. The right amount to spend is very directly tied to your LTV, so calculating and understanding your CAC is extremely important.

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Customer lifetime value is the average amount of money that you earn per customer over the lifetime of their relationship with you. In SaaS, this is the amount of money you make from the time they sign up, to the time they cancel and don't return. Calculating LTV accurately can tell you a lot about your business.

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Before we can tell you how to calculate your unit economics, you need to understand the metrics that go into the calculation. There are many ways to measure the success of a business and to predict its financial stability. Each of those has its own set of key performance indicators that need to be tracked.

Basic unit economics needs just two: LTV and CAC. But the more accurate formulas we'll discuss later rely on much more in-depth metrics. This section will cover all you need to know. The abbreviations given will be used when describing the various unit economics formulas in the next section.

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Unit economics refers to the direct revenues and costs of a particular business measured on a per unit basis, where a unit can be any quantifiable item that brings value to the business. Calculating unit economics makes it easier to forecast things such as break-even points and gross margins. Most businesses are probably, at least on some level, using unit economics calculations even if they are not familiar with the term. But fully taking advantage of your unit economics requires a little more commitment and understanding.