Unit Economics
A ratio computed on revenue, undiscounted and summed to infinity will always look good. Build the version you could defend instead — gross margin, discounted, horizon-capped — and watch the gap between the headline and the honest number. Then treat payback as the separate question it is.
Includes the loop the metrics tree cannot show: where retention genuinely compounds.
Inputs
Three LTVs, and why only one is honest
Revenue LTV ARPU ÷ churn. What most decks show. | £1286 | 2.76x |
Gross-margin LTV After the cost of serving them. | £1042 | 2.23x |
Discounted, horizon-capped The one to put in front of an investor. | £852 | 1.82x |
Payback is a separate question from the ratio
19 months is slow. You fund every customer for a year and a half before breaking even, so growth consumes cash at a rate that scales with success. A healthy ratio with a long payback is how companies with good economics still die.
Where retention actually compounds
In the metrics tree, acquisition and retention are worth the same at the margin. Here they are not — because retention feeds back. Better retention raises LTV; a higher LTV supports a higher CAC at the same ratio; a higher affordable CAC buys customers the old economics could not reach. That loop is the real compounding, and it lives in the economics rather than in the funnel arithmetic.
| Monthly churn | LTV | vs today | Affordable CAC at 3x |
|---|---|---|---|
| 5.25% | £622 | -27% | £207 |
| 4.38% | £722 | -15% | £241 |
| 3.50% | £852 | +0% | £284 |
| 2.63% | £1023 | +20% | £341 |
| 1.75% | £1253 | +47% | £418 |
Read the last column as a strategy statement. Halving churn does not just improve a ratio on a slide — it changes which acquisition channels you can afford to be in, which is a different company.
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