lev-os Analyzing Startup Unit Economics
Deconstructs unit economics with CAC, LTV, payback period, gross margin, and contribution margin analysis.
When To Use
- Evaluating a startup's business model viability during due diligence for seed or Series A/B rounds
- Benchmarking a portfolio company's efficiency metrics against cohort or industry standards
- Assessing whether a company's growth spending is sustainable before follow-on investment
- Validating founder-reported metrics in a pitch deck or data room against raw financials
- Stress-testing margin assumptions in financial models or projections
Inputs To Gather
- Revenue data: MRR/ARR broken out by cohort, contract type, and pricing tier
- Customer acquisition costs: Total sales & marketing spend, headcount costs, paid channel spend, attribution breakdown (blended vs. channel-specific CAC)
- Churn and retention: Monthly/annual logo churn, revenue churn (gross and net), cohort retention curves
- Gross margin inputs: COGS breakdown — hosting/infrastructure, customer support, onboarding, payment processing, third-party API costs
- Customer count and segmentation: Number of customers by plan/tier, ACV distribution, enterprise vs. SMB mix
- Expansion revenue: Upsell/cross-sell revenue, seat expansion, usage-based overage
- Time period: Confirm trailing period (T-3, T-6, T-12 months) and whether data is accrual or cash-basis
Workflow
Validate raw data — Reconcile reported metrics against source financials. Check that total revenue ties to MRR x months, that S&M spend matches P&L line items, and that customer counts are internally consistent. Flag discrepancies with [VERIFY].
Calculate core unit economics:
- CAC = Total S&M spend / New customers acquired (calculate blended and per-channel)
- Gross Margin = (Revenue − COGS) / Revenue — itemize COGS components; flag if founder excludes typical line items (e.g., customer success salaries)
- Contribution Margin = Gross Profit − Variable Operating Costs per unit (include variable S&M, variable G&A if applicable)
- LTV = ARPU × Gross Margin / Monthly Churn Rate (or use DCF-based LTV for longer contract businesses; note the method used)
- LTV:CAC Ratio = LTV / CAC — target ≥ 3:1 for venture-scale businesses [VERIFY against sector-specific benchmarks]
- CAC Payback Period = CAC / (ARPU × Gross Margin) — express in months; ≤12 months is strong for SMB SaaS, ≤18-24 months acceptable for enterprise [VERIFY by segment]
Assess cohort behavior — Plot retention curves by acquisition cohort. Identify whether recent cohorts retain better or worse than older ones. Calculate net dollar retention (NDR); >120% NDR signals strong expansion economics. Note if data depth is insufficient for mature cohort analysis.
Analyze margin trajectory — Determine whether gross margin is expanding, stable, or compressing over time. Identify drivers: infrastructure cost leverage, support cost scaling, pricing changes, mix shift. Distinguish between current-state margins and at-scale projected margins.
Benchmark and contextualize — Compare metrics against relevant benchmarks:
- Stage-appropriate medians (e.g., Bessemer Cloud Index, OpenView SaaS Benchmarks) [VERIFY benchmark source is current]
- Business-model norms: usage-based vs. seat-based vs. platform pricing models carry different margin and retention profiles
- Note where the company is an outlier (positive or negative) and why
Identify risks and sensitivities — Stress-test key assumptions:
- What happens to LTV:CAC if churn increases 20%?
- How does CAC payback shift if blended CAC rises with channel saturation?
- Are gross margins artificially high due to deferred costs (e.g., free onboarding that won't scale)?
- Is expansion revenue masking poor logo retention?
Output
Structure the deliverable as follows:
- Executive Summary (2-3 sentences): Headline assessment of unit economics health and investability signal
- Core Metrics Table: CAC, LTV, LTV:CAC, payback period, gross margin, contribution margin, NDR — with trailing 6- and 12-month values where available
- Cohort Analysis: Retention curve summary with visual description or table; NDR by cohort vintage
- Margin Analysis: Current gross margin breakdown with trend and at-scale projection
- Key Risks: Ranked list of unit economics risks with magnitude estimates
- Benchmarking Context: Where the company sits relative to stage/sector peers
- Data Gaps & Assumptions: Explicit list of missing inputs, assumptions made, and [VERIFY] items
Quality Checks
- Every calculated metric traces back to identified source data — no orphaned numbers
- CAC calculation method is stated (blended vs. fully-loaded vs. channel-specific); ensure S&M denominator includes all relevant costs (salaries, tools, attribution)
- LTV method is stated (simple vs. DCF); discount rate noted if DCF is used
- Gross margin COGS is itemized — confirm no material costs are excluded or misclassified as operating expense
- All benchmarks cite a specific source and vintage year
- Sensitivity analysis covers at least churn, CAC, and gross margin variables
- [VERIFY] tags are present for any jurisdiction-specific tax treatment, benchmark thresholds, or accounting-method-dependent figures
- If data covers <6 months or <100 customers, flag statistical reliability limitations explicitly