GUIDE · 2026

How to calculate unit economics

Price, costs, hours, break-even, and LTV:CAC without spreadsheet theater. Free calculator + CSV at the end.

The formulas

If contribution ≤ 0, every sale loses money before fixed costs. Fix price or variable cost first — volume makes it worse.

Step-by-step

1. Pick the unit — one SKU, one seat-month, one client project, one delivered clip. Mixed units hide the truth.
2. Price — cash the customer actually pays after discounts (not list price fantasy).
3. Variable cost — only costs that move with one more unit: COGS, payment fees, contractor time, shipping, platform cuts.
4. Contribution — price minus variable cost. This is the money left to cover fixed costs and profit.
5. Fixed costs — rent, salaried headcount, core tools that stay even at zero sales this month.
6. Break-even volume — fixed ÷ contribution. That many units/month just to stand still.
7. Hours check — if you deliver with time: effective $/hour = price ÷ hours. If below your floor, raise price or cut hours.
8. Recurring path — LTV ≈ (monthly ARPU × gross margin) ÷ monthly churn. CAC = fully loaded sales+marketing ÷ new customers.

Common mistakes

• Calling salary “variable” when headcount does not flex with one sale
• Ignoring payment fees, refunds, chargebacks, and platform cuts
• Using list price while everyone pays a discount
• LTV with 0% churn or infinite lifetime (fantasy)
• Optimizing CAC before contribution margin is positive
• Averaging unlike units (a $19 pack and a $2,000 custom job in one “unit”)

What to do with the numbers

• Negative contribution — stop scaling volume; fix price or variable cost today
• Positive contribution, break-even far away — cut fixed or raise price before hiring
• Hours under floor — productize, template, or raise price; do not “make it up in volume”
• LTV:CAC < 1 — acquisition is destroying cash; pause paid until retention or pricing improves
• LTV:CAC ≥ 3 with real data — candidate to scale the channel that produced that CAC

FAQ