Unit Economics: Understanding Whether Your Business Actually Works

Unit economics answer the most important question in any business: does each customer transaction generate more value than it costs to acquire and serve that customer? Without this analysis, revenue growth can accelerate financial losses rather than create value. Customer Acquisition Cost (CAC) is the total cost of sales and marketing in a period divided by the number of new customers acquired in the same period. If you spent ₦2,000,000 on marketing and sales activities in a month and acquired 400 new customers, your CAC is ₦5,000 per customer. Critically, include all costs that touch the acquisition process — salesperson salaries, agent commissions, advertising spend, referral bonuses, and the time cost of the founder doing sales. Lifetime Value (LTV) is the total net revenue a customer generates over the entire period they remain a customer. LTV = (Average Revenue Per User per month × Gross Margin %) ÷ Monthly Churn Rate. If average monthly revenue per customer is ₦3,000, gross margin is 60%, and monthly churn is 5%, LTV = (₦3,000 × 0.60) ÷ 0.05 = ₦36,000. The LTV:CAC ratio is the headline metric investors use to assess business model health. LTV:CAC above 3:1 is the minimum threshold most African investors consider viable. LTV:CAC of 5:1 or above signals a strong, scalable business. The time to recover CAC (CAC Payback Period) should be under twelve months for a SaaS or subscription business; longer payback periods create cash flow dependency on continuous funding. Gross margin is revenue minus the direct cost of delivering one unit of the product or service. For a software product, gross margin should exceed 70%. For a marketplace, above 40%. For a physical product business, above 35% is a viable foundation; below 25% makes it structurally difficult to cover sales, marketing, and overhead while remaining profitable. The downloadable unit economics calculator includes pre-built worksheets calibrated for Nigerian, Kenyan, Ghanaian, and South African businesses with local currency examples. --- *Track 1 — I am just starting out · Building Your Business Model · Article 10.* Browse related [funding opportunities](/opportunities) on MaxWith filtered to your country and sector.