Page 207 · Module 09, Finance & Metrics · this screen continues that page
All 108 frameworksUnit Economics - LTV:CAC
The two numbers that tell you whether your business model actually works
The prompt
Copy & paste readyLabelsReplace theseSwap the role below
Pro tip, from the book
Payback period is often more important than the LTV:CAC ratio for early-stage companies. A 5:1 LTV:CAC sounds excellent, until you realise the payback period is 36 months and you're burning cash for three years before each customer turns profitable. A 2. 5:1 ratio with a 9-month payback is often a healthier business than a 5:1 with a 30-month payback.
Who should run this prompt
Module role profileWho should review your numbers and financial narrative? Numbers do not lie — but they can mislead when read through the wrong lens. A CFO and an investor look at the same P&L and ask completely different questions. A customer's finance team looks at your pricing and asks a question neither of them thought of. Use this page to choose who is in the room before you present, model, or decide based on your financial data.
Choose any role to drop it into the prompt above. Only the highlighted opening clause changes — the rest of the prompt stays exactly as printed.
◆◆◆◆◆ → ◆ seniority, board level down to specialist◈ outside the organisation
How to make any role sharper
- Add years of experience: "...with 15 years in enterprise SaaS" produces different depth than just the title.
- Add what they care most about: "You care most about [X]" shapes every word of the output.
- Add their communication style: "Be direct. Flag risks first. No jargon." changes the tone entirely.
Use this when
The problem it solvesYou are acquiring customers and growing revenue but you're not sure whether each customer is genuinely profitable when you account for the full cost of acquiring and serving them. You might be scaling a model that loses money per customer.
How the framework works
From the printed pageLTV:CAC is the foundational unit economics ratio for any customer-acquisition business. LTV (Lifetime Value) is the total revenue a customer generates over their relationship with you, minus the cost to serve them. CAC (Customer Acquisition Cost) is the total cost - marketing, sales, onboarding - to acquire one customer. The ratio tells you how much value you get back per dollar spent acquiring a customer. A ratio of 3:1 or higher is generally considered healthy - meaning every dollar spent on acquisition returns three dollars of lifetime value. Below 1:1 means you are paying more to acquire customers than they are worth. The ratio alone does not tell you the full story without payback period. A business can show a healthy 4:1 ratio while taking three years to recoup each customer's acquisition cost, which is a cash flow problem the ratio hides.
The method, in four moves
Do these in orderCalculate LTV using actual retention data not assumed churn rates. Real churn is almost always higher than expected.
Calculate CAC by dividing total sales and marketing spend by new customers acquired in the same period.
Segment LTV and CAC by customer type averages hide the fact that some segments are highly profitable and others destroy value.
Track the LTV:CAC ratio monthly improvement signals a healthier model, decline signals a problem before it becomes a crisis.
Where the framework comes from
SaaS & venture capital methodology — LTV:CAC framework widely standardised 2010s
Pairs well with
As printed with this frameworkModule 09 — Finance & Metrics
Know your numbers. Own your narrative.
9 frameworks, printed on pages 206–223.
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