Unit Economics Tool

The Unit Economics Tool is a focused, single-sheet calculator for per-unit economics: LTV, CAC, LTV/CAC, and payback. No time-series forecast, no cross-sheet plumbing. Just the math.

Use it to sanity-check a business case before you model a full forecast, or to pressure-test the unit economics inside a larger model.

For concept background, see unit economics.

Why this matters

Unit economics answer one question: does this business make money per customer? Before scale, before fundraising, before a forecast: do the per-unit numbers work?

If LTV/CAC is 1.5x, don't build a 60-month forecast. Fix the unit economics first. The Tool exists so that takes minutes, not days.

How it works

The tool models three revenue types independently and sums them. Recurring is subscription-style, with churn and a billing period. One-time is flat revenue at a fixed month after acquisition. Transaction is repeat purchases with their own growth and churn.

Every input sits in column D on the Unit Economics sheet, rows 5-47. Outputs (LTV, LTV/CAC, payback) sit at rows 49-54. Rows 56-1001 hold the 48-month per-unit cash flow detail across columns E-BA.

Inputs you'll edit

Revenues (R10-R12). Revenue per unit for each of the three types. Default is $25 recurring, $0 one-time, $0 transaction.

Cost of sales (R15-R17). COGS as a % of revenue for each type. 10% recurring is the default.

Discounts (R20-R21). Flat discount on recurring and transaction revenue.

Churn and growth (R24-R37). Billing period, churn period, churn %, average customer lifetime, annual margin growth, and the transaction-side equivalents.

Discount rate (R40). Annual rate used for present-value adjustments. The tool derives the period factors K (rows 41-42) from this.

Acquisition costs (R45-R47). CAC, cost of retention for recurring, cost of repeat for transaction.

Outputs

Rows 49-54 are all formulas. LTV for recurring, one-time, transaction, and combined; LTV/CAC; and CAC payback months, calculated on contribution margin, not revenue.

The detail block (R56 down) shows monthly revenue, COGS, gross margin, growth and churn adjustments, net margin, and cumulative totals for each revenue type.

How LTV is calculated

Most online LTV calculators use ARPU / Churn Rate. That's a simplification. The Tool uses a DCF formulation (future cash flows discounted at the rate in D40), so LTV accounts for the time value of money. For long customer lifetimes (24+ months), the simple formula over-counts by a meaningful margin.

LTV is also calculated on contribution margin, not revenue: revenue minus COGS minus cost-of-retention. That's what you actually have to offset CAC.

How payback is calculated

Payback (D54) is months until cumulative contribution margin covers CAC. Not months until cumulative revenue covers CAC.

At defaults ($25 recurring, 10% COGS, $65 CAC), contribution margin is $22.50/month and payback is around 3 months. If COGS rises to 40%, contribution margin drops to $15/month and payback stretches. Same revenue, very different answer.

The detail block from R56 shows the monthly build so you can point at exactly where cumulative margin crosses CAC. Useful for explaining the number to a board.

Common mistakes

LTV on revenue, not margin overstates by the COGS %. Ignoring churn and pretending customers stay forever produces nonsense; divide ARPU by churn. Skipping the discount rate hurts for long lifetimes, where present-value adjustments matter. Blending metrics hides the failing unit; calculate by channel or cohort. And set-and-forget is its own mistake. Recalculate as you learn real churn, real CAC, real ARPU.

Before the forecast vs. inside the forecast

Run the Unit Economics Tool first. It answers can this work? Once the numbers work, the Standard Financial Model forecasts them over time. Its Unit Economics sheet pulls LTV, CAC, and payback from revenue drivers on Get Started and Revenues. The Tool is a calculator; the Standard Model is a forecaster.

How to edit with AI

Open the workbook in Claude for Excel or connect the Hemrock MCP server at mcp.hemrock.com. See the prompt guide for examples. Ask Claude to extend the 48-month horizon, add a fourth revenue type, or swap in your own CAC logic. The structure stays; you shape the math.