Topic
Unit Economics
Measuring and improving the fundamental economics of your business.
What the experts say
“Nuts and dried fruits have high or higher value per cubic inch compared to wine, making them excellent for Trader Joe's business model.”
Acquired · 1:31:23
“Joe Coulter's first test for stocking goods at Trader Joe's is selecting items with high value per cubic inch, starting with liquor and vitamins.”
Acquired · 1:00:43
“Coulter faced a real back-against-the-wall problem where he needed to find products with high enough gross margins to meet immediate rent obligations while his business was at risk of failure.”
Acquired · 34:30
“Lightyear's unit economics allow for pricing in cents rather than dollars or euros, which is drastically lower than traditional European banking fees.”
Riding Unicorns · 8:01
“Lightyear's cost structure allows pricing in cents rather than dollars or euros per transaction because the underlying operational costs are significantly lower.”
Riding Unicorns · 8:01
“In SaaS, when customers churn early, it is particularly unprofitable because the acquisition cost is never recouped before the customer leaves.”
Lenny's Podcast · 28:23
“In SaaS, when customers leave early, it is not only bad for the business but also highly unprofitable because acquisition costs are not recouped if the customer doesn't stay long enough.”
Lenny's Podcast · 28:23
“Running a profitable business at scale doesn't necessarily require optimizing traditional metrics like CAC and CLTV; what matters most is understanding what customers actually value.”
Lenny's Podcast · 1:38:52
“If a tool like Double Down halves the cost per lead, a company can acquire twice as many leads for the same budget spend.”
Lenny's Podcast · 44:13
Related episodes
SaaS
SaaS
LTV
It it's a great screening metric. But if you're actually trying to fix things, I wanna look more granularly. So CAC ratio does not include gross margin, for example. If I wanna know what your gross margin is, I can ask you what your gross margin is....
But does that matter? Okay. I'm just pushing you. Yeah. Does that matter if your LTV is eight years? Darn. You beat me to it, Harry. Yes. That's gonna be the question, which is what you pay for something should be a function of what it's worth. It's...
god bless you all, tend to like compound metrics because you're in screening mode. Right? And in screening mode, the payback period is forty eight months. I don't need to beat these people, and I don't care why. Right? It it's a great screening...
Yeah. You're definitely a VC, Harry. Yeah. It is. Because you wanna understand the health of the business. I wanna know if sales and marketing is broken. And just say it's a crappy product, I might be able to pour water in the bucket for 80¢. Right?...
depend on the ACV size? And so if you are selling, I don't know, a 100 k ACVs, it should be a much smaller payback or shorter payback than if you have longer ACVs? Or is it actually pretty much the same? To be clear, CAC is not my particular...
Yeah. You're definitely a VC, Harry. Yeah. It is. Because you wanna understand the health of the business. I wanna know if sales and marketing is broken. And just say it's a crappy product, I might be able to pour water in the bucket for 80¢. Right?...
family plan, everything was $20.25 dollars a month. So there was a belief that the price ceiling for consumer products mass market was 20 to 25 a month. You look at Grok heavy, it's 300 a month. Chat g p t, 200 a month. Gemini Ultra, $2.50 a month....
From your experience, do cats go up or down over time? So my experience, they should go down. Startups have this tendency to believe in what I would call the low hanging fruit problem, which is, oh, darn, the CAC has to go up over time because we...
So, certainly, it's tougher now than it's been with with the CFO doing their best to to keep budgets under control. I think for a SaaS company, efficient growth to me, it ultimately means I mean, on Metrix personally, you know that. We gotta look at...
But it's not always the case. Right? Sometimes you you need to and this, by the way, is why I spent most of my career in marketing, not sales. Right? The first time I had a quota, I was a CEO. Right? I I know a lot about sales, as we'll talk about....
Do CACs get cheaper over time as brand becomes better known, you become more branded in an ecosystem, or do they get more expensive as you saturate the core target market and you have to expand into maybe less directly relevant ICPs? The only right...
I think it's increased churn most of the time. When I look at companies, it's usually increased churn. That that they're still expanding reasonably well. I mean, I've seen companies where it's both. And by the way, if you asked, like, the most...
I'm not a fan of talking about like, you know, SEO, AO. If one gonna replace another, probably yes, probably no. Not all the companies are built for SEO and for good SEO. You need to be in a specific niche probably to build some programmatic SEO....
family plan, everything was $20.25 dollars a month. So there's a belief that the price ceiling for consumer products mass market was 20 to 25 a month. You look at Grok heavy, it's 300 a month. ChatGPT, 200 a month. Gemini Ultra, $2.50 a month. So...
Yes. Does CAT to LTV matter because it's so inaccurate and transient? Reason being, your CATs go up and down very quickly over time. And your LTVs, as you expand product lines Yes. Can significantly expand. I come in as an entry product and suddenly...
I'll actually just do what I have new ARR. My first order CAC is just it's not net new because net new introduced churn. You just made my metric more complicated. Right? You you made it easier to cheat. You you you took away something that's...
I can summarize all of Geoffrey Moore in one sentence, which is people buy when they think people like them use your solution. ICP, ideal customer profile. ICP starts out as an aspiration, and over time, it becomes a regression. There's three...
just to keep them as customers. Are you seeing incredible pressure to prove value for existing vendors? And are we seeing changing structure of SaaS teams to prove that value? Absolutely. I mean, CFOs are trying to reduce SaaS spend. SaaS spend...
That's down to 30% in 2024 just because it's not sustainable and and investors won't tolerate that level of lack of return. Also, if you think about payback period, if you you look at top quartile SaaS companies versus bottom quartile, top quartile...
And what does that mean? Right? It means in day one, it's an aspiration. We want to sell to companies who look like this. We think this buyer will buy us to solve this problem. Right? It's a company buyer problem. That's the aspirational phase of...
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