Evaluate SaaS unit economics and capital efficiency. Use when deciding whether the business can scale efficiently or needs correction.

Purpose Determine whether your SaaS business model is fundamentally viable and capital efficient. Use this to calculate unit economics, assess profitability, manage cash runway, and decide when to scale vs. optimize. Essential for fundraising, board reporting, and making smart investment trade offs. This is not a finance reporting tool—it's a framework for PMs to understand whether the business can sustain growth, when to prioritize efficiency over growth, and which investments have positive returns. Input Works best with: The question you're answering (can we scale? raise? extend runway?) or the metrics you want evaluated. Also useful: Your numbers — CAC, gross margin, burn, runway, magic number — partial data is workable. Anything supplied with the invocation itself — text after the skill name, a pasted context dump, or an appended ARGUMENTS: line — counts as answers already given. Use it and skip whatever it covers; don't re ask. Arriving empty handed? That works too. Use it as a reference: read the metric sections relevant to your stage and decision. Example invocation: Are we efficient enough to scale? CAC $9K, gross margin 72%, burn multiple 2.1, magic number 0.6. Key Concepts Unit Economics Family Metrics that measure profitability at the customer level—the foundation of sustainable SaaS. Gross Margin — Percentage of revenue remaining after direct costs (COGS). Why PMs care: A feature that generates $1M revenue at 80% margin is worth far more than $1M at 30% margin. Margin determines which features to prioritize. Formula: (Revenue COGS) / Revenue × 100 COGS includes: Hosting, infrastructure, payment processing, customer onboarding costs Benchmark: SaaS 70 85% good; <60% concerning CAC (Customer Acquisition Cost) — Total cost to acquire one customer. Why PMs care: Shapes entire go to market strategy. Determines which channels are viable and how much you can invest in product led growth. Formula: Total Sales & Marketing Spend / New Customers Acquired Benchmark: Varies by model—Enterprise $10K+ ok; SMB <$500 target Include: Marketing spend, sales salaries, tools, commissions LTV (Lifetime Value) — Total revenue expected from one customer over their lifetime. Why PMs care: Tells you what you can afford to spend on acquisition. Higher LTV enables premium channels and longer payback periods. Formula (simple): ARPU × Average Customer Lifetime (months) Formula (better): ARPU × Gross Margin % / Churn Rate Formula (advanced): Account for expansion, discount rates, cohort specific retention Benchmark: Must be 3x+ CAC; varies by segment LTV:CAC Ratio — Efficiency of customer acquisition spending. Why PMs care: Is growth sustainable or are you buying revenue at a loss? Determines when to scale vs. optimize. Formula: LTV / CAC Benchmark: 3:1 healthy; <1:1 unsustainable; 5:1 might be underinvesting Note: This ratio alone doesn't tell the full story—also need payback period Payback Period — Months to recover CAC from customer revenue. Why PMs care: Cash efficiency. Faster payback = reinvest sooner. Slow payback can kill growth even with good LTV:CAC. Formula: CAC / (Monthly ARPU × Gross Margin %) Benchmark: <12 months great; 12 18 ok; 24 months concerning Critical: Must have cash to sustain payback period Contribution Margin — Revenue remaining after ALL variable costs (not just COGS). Why PMs care: True unit profitability. Includes support, processing fees, variable OpEx. Formula: (Revenue All Variable Costs) / Revenue × 100 Variable costs: COGS + support + payment processing + variable customer success Benchmark: 60 80% good for SaaS; <40% concerning Gross Margin Payback — Payback period using actual profit, not revenue. Why PMs care: More accurate than simple payback. Shows true cash recovery time. Formula: CAC / (Monthly ARPU × Gross Margin %) Benchmark: Typically 1.5 2x longer than simple revenue payback CAC Payback by Channel — Compare payback across acquisition channels. Why PMs care: Not all channels are created equal. Optimize channel mix based on payback efficiency. Formula: Calculate CAC and payback separately for each channel Use: Allocate budget to faster payback channels when cash constrained Capital Efficiency Family Metrics that measure how efficiently you use cash to grow the business. Burn Rate — Cash consumed per month. Why PMs care: Determines what you can build and when you need funding. High burn requires aggressive revenue growth. Formula (Gross Burn): Monthly Cash Spent (all expenses) Formula (Net Burn): Monthly Cash Spent Monthly Revenue Benchmark: Net burn <$200K manageable for early stage; $500K needs clear path to revenue Runway — Months until cash runs out. Why PMs care: Literal survival metric. Dictates timeline for milestones, fundraising, profitability. Formula: Cash Balance / Monthly Net Burn Benchmark: 12+ months good; 6 12 manageable; <6 months crisis mode Rule: Raise when you have 6 9 months runway, not 3 months OpEx (Operating Expenses) — Costs to run the business (excluding COGS). Why PMs care: Your team's salaries live here. Where "efficiency" cuts happen during downturns. Categories: Sales & Marketing (S&M), Research & Development (R&D), General & Administrative (G&A) Benchmark: Should grow slower than revenue as you scale (operating leverage) Net Income (Profit Margin) — Actual profit or loss after all expenses. Why PMs care: True bottom line. Are you making money? Can you self fund growth? Formula: Revenue All Expenses (COGS + OpEx) Benchmark: Early SaaS often negative (growth mode); mature should be 10 20%+ margin Working Capital Impact — Cash timing differences between revenue recognition and cash collection. Why PMs care: Annual contracts paid upfront boost cash. Monthly billing delays cash. Affects runway calculations. Example: $1M annual contract paid upfront = $1M cash now, not $83K/month Use: Understand cash vs. revenue timing when planning runway Efficiency Ratios Family Composite metrics that measure growth vs. profitability trade offs. Rule of 40 — Growth rate + profit margin should exceed 40%. Why PMs care: Framework for balancing growth vs. efficiency. Guides when to prioritize profitability over growth. Formula: Revenue Growth Rate % + Profit Margin % Benchmark: 40 healthy; 25 40 acceptable; <25 concerning Example: 60% growth + ( 20%) margin = 40 (healthy growth mode SaaS) Example: 20% growth + 25% margin = 45 (healthy mature SaaS) Magic Number — Sales & marketing efficiency. Why PMs care: Is your GTM engine working? Should you scale spend or optimize first? Formula: (Current Quarter Revenue Previous Quarter Revenue) × 4 / Previous Quarter S&M Spend Benchmark: 0.75 efficient; 0.5 0.75 ok; <0.5 fix before scaling Note: "× 4" annualizes quarterly revenue change Operating Leverage — How revenue growth compares to cost growth. Why PMs care: Are you scaling efficiently? Revenue should grow faster than costs. Measure: Revenue growth rate vs. OpEx growth rate over time Good: Revenue growth 50%, OpEx growth 30% (positive leverage) Bad: Revenue growth 20%, OpEx growth 40% (negative leverage) Unit Economics — General term for profitability of each "unit" (customer, seat, transaction). Why PMs care: Is the business model fundamentally viable at the unit level? Calculate: Revenue per unit Cost per unit Requirement: Positive contribution required; aim for $0 after all variable costs Anti Patterns (What This Is NOT) Not vanity metrics: High LTV means nothing if payback takes 4 years and customers churn at 3 years. Not static benchmarks: "Good" CAC varies wildly by business model (PLG vs. enterprise sales). Not isolated numbers: LTV:CAC ratio without payback period can mislead (great ratio, terrible cash efficiency). Not just finance's problem: PMs must own unit economics—every feature decision impacts margins and CAC. When to Use These Metrics Use these when: Evaluating whether to scale acquisition (LTV:CAC, payback, magic number) Deciding feature investments (margin impact, contribution to LTV) Planning runway and fundraising (burn rate, runway, Rule of 40) Comparing customer segments or channels (unit economics by segment) Board/investor reporting (Rule of 40, magic number, LTV:CAC) Choosing between growth and profitability (Rule of 40 trade offs) Don't use these when: Making decisions without revenue context (pair with saas revenue growth metrics ) Comparing across wildly different business models without normalization Early product discovery (pre revenue focus on PMF, not unit economics) Short term tactical decisions (use engagement metrics, not LTV) Application Step 1: Calculate Unit Economics Use the templates in template.md to calculate your unit economics metrics. Gross Margin Example: Revenue: $1,000,000 COGS: $200,000 (hosting $120K, processing $50K, onboarding $30K) Gross Margin = ($1M $200K) / $1M = 80% Quality checks: Is gross margin improving as you scale? (Should benefit from economies of scale) Which products/features have highest margins? (Prioritize those) Are margins 70%? (SaaS should be high margin) CAC (Customer Acquisition Cost) Example: Sales & Marketing Spend: $500,000/month New Customers: 100/month CAC = $500,000 / 100 = $5,000 Quality checks: Is CAC consistent across channels? (Calculate by channel) Is CAC increasing or decreasing over time? (Should decrease with scale) Does CAC vary by customer segment? (SMB vs. Enterprise) LTV (Lifetime Value) Example (Simple): ARPU: $500/month Average Lifetime: 36 months LTV = $500 × 36 = $18,000 Example (Better): ARPU: $500/month Gross Margin: 80% Monthly Churn: 2% LTV = ($500 × 80%) / 2% = $400 / 0.02 = $20,000 Quality checks: Is LTV growing over time? (From expansion, improved retention) Does LTV vary by cohort? (Are new customers more/less valuable?) Does LTV vary by segment? (Enterprise vs. SMB) LTV:CAC Ratio Example: LTV: $20,000 CAC: $5,000 LTV:CAC = $20,000 / $5,000 = 4:1 Quality checks: Is ratio 3:1? (Minimum for sustainable growth) Is ratio 5:1? (Might be underinvesting in growth) Is ratio improving or degrading over time? Interpretation: <1:1 = Losing money on every customer (unsustainable) 1 3:1 = Marginal economics (optimize before scaling) 3 5:1 = Healthy (scale confidently) 5:1 = Potentially underinvesting (could grow faster) Payback Period Example: CAC: $5,000 Monthly ARPU: $500 Gross Margin: 80% Payback = $5,000 / ($500 × 80%) = $5,000 / $400 = 12.5 months Quality checks: Is payback <12 months? (Excellent) Is payback <18 months? (Acceptable) Do you have cash runway to sustain payback period? Critical insight: 4:1 LTV:CAC with 36 month payback is a cash trap. 3:1 LTV:CAC with 8 month payback is better for growth. Contribution Margin Example: Revenue: $1,000,000 COGS: $200,000 Variable Support: $50,000 Payment Processing: $30,000 Contribution Margin = ($1M $280K) / $1M = 72% Quality checks: Is contribution margin 60%? (Good for SaaS) Are certain products/segments lower margin? (Consider sunsetting) Does margin improve with scale? Step 2: Calculate Capital Efficiency Burn Rate Example: Monthly Expenses: $800,000 Monthly Revenue: $400,000 Gross Burn: $800,000/month Net Burn: $400,000/month Quality checks: Is net burn decreasing over time? (Path to profitability) Is burn rate sustainable given runway? What's the burn rate relative to revenue? (Burn multiple) Runway Examp

saas-economics-efficiency-metrics