Unit Economics Workbench

Your CAC is $150. Good or bad?

Impossible to say without knowing LTV.

Most advertisers focus exclusively on CPA (Cost Per Acquisition) without connecting it to the business economics behind the number.

The Unit Economics Workbench forces you to model both sides: What does it cost to acquire a customer (CAC) AND what is that customer worth over time (LTV)?

This transforms PPC optimization from "get cheaper clicks" to "acquire customers profitably."

CPA ≠ CAC. Most advertisers confuse these.

CPA (Cost Per Acquisition):

Ad Spend / Conversions

True CAC (Customer Acquisition Cost):

(Ad Spend + Marketing Salaries + Agency Fees + Software Tools) / New Customers Acquired

The gap matters. Your CPA looks great at $100, but your True CAC is $200 when you include the full marketing cost stack.

The Workbench lets you:

Channel CAC Comparison:

Often reveals that Paid Search has $80 CAC while Display has $340 CAC. Without segmentation, your blended $150 CAC hides this disparity.

The problem: Calculating true LTV requires tracking customers over 12-24+ months. Most businesses don't have this data yet.

The LTV Proxy approach:

LTV Proxy = AOV × Avg Orders per Customer (90 days) × Estimated Lifetime in Quarters

Example:

This isn't perfect, but it's directional enough for budget decisions.

As your business matures, replace the proxy with actual cohort retention curves from your CRM or GA4.

Churn/Return Rate Adjustment:

In Settings, input your estimated annual churn rate (subscriptions) or return/refund rate (e-commerce). The model adjusts LTV accordingly. 20% annual churn reduces effective LTV by ~35% over a 3-year horizon.

What-If Analysis Mode:

Adjust AOV, repeat purchase rate, or margin percentages to model scenarios:

Visual: Gauge showing Current CAC as a percentage of Max Tolerable CAC.

Formula:

Max Tolerable CAC = LTV × (1 - Target Margin %)

Example:

If your current CAC is $200, that's 35% of Max Tolerable → Green zone.

Color zones:

🟢 Green (0-60%): Significant room to scale aggressively.

🟡 Yellow (60-90%): Room to scale, but cautiously. Monitor efficiency.

🔴 Red (90-110%+): At or above ceiling. Optimize or pause.

The Thermometer updates in real-time as you adjust LTV assumptions, margin targets, or input new cost data.

What it shows: CAC and LTV broken down by monthly acquisition cohort.

Why it matters: Your blended CAC might be stable every month. But are you acquiring the same quality of customers?

Example:

The trend tells the story: CAC is rising while customer quality is declining. By April, you're barely above the 2:1 minimum threshold.

Possible causes: Audience saturation (exhausted best prospects), Creative fatigue (same ads, lower quality clicks), Competitor activity (raising auction prices), Seasonal shift (off-peak customers have lower intent).

Action: If LTV:CAC drops below 3:1 for two consecutive months, investigate immediately.

What it calculates: How many months until a customer generates enough gross profit to cover their acquisition cost.

Formula:

Payback Period = CAC / (Monthly Revenue per Customer × Gross Margin %)

Example:

Interpretation:

Why this matters for PPC: If your payback period is 8 months but you only have 3 months of cash runway, you can't afford aggressive scaling even if LTV:CAC is 5:1. The math works long-term, but cash flow kills you short-term.

The calculator visualizes a month-by-month waterfall showing cumulative profit per customer vs CAC.

Unit economics is a quarterly strategic exercise, not a daily optimization.

Every Quarter (90 minutes):

Step 1: Update Cost Inputs (15 min)

Refresh all marketing costs: ad spend by channel, team salaries, agency fees, tools. Calculate fresh Blended CAC and Channel CAC.

Step 2: Refresh LTV Model (20 min)

Update AOV, repeat purchase rate, and churn rate with actual data. If you now have 12+ months of customer data, switch from LTV Proxy to actual cohort curves.

Step 3: Thermometer Check (10 min)

Is current CAC still in the green zone? Has Max Tolerable CAC changed?

Step 4: Cohort Review (30 min)

Are recent cohorts maintaining LTV:CAC ratios? Any downward trend?

Step 5: Payback Period Update (15 min)

Has payback period changed? If lengthening, either CAC is rising or per-customer revenue is falling.

Use Unit Economics when you want to:

Don't use Unit Economics when you want to:

Who Should Use This:

✅ Founders and CFOs (business-level PPC decisions)

✅ Growth leads (scaling strategy)

✅ Agency strategists (proving ROI beyond ROAS)

❌ PPC practitioners (too strategic for daily work)

How Often: Quarterly for full review. Monthly glance at Thermometer and Cohort trends.