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A crash course in unit economics-don’t learn this the painful way

by
Ha Nguyen
Spero Ventures
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  • Unit economics measures whether a company makes or loses money for a single unit of the good or service that they sell. 
  • Lifetime Value (LTV) is the net profit for a single customer. This is measured over the entire time that the customer uses a product (which can require multiple payments). 
  • Customer Acquisition Cost (CAC) is the cost of gaining a new customer.     Together, these measures can tell us a lot about the potential success of a startup. For instance, a high growth startup may, on the surface, look really promising. However, if it has negative unit economics (it loses money for each good sold), the startup is merely using its investors’ money rather than making a profit. The same occurs when CAC exceeds LTV: the startup loses money for every customer. In the short term, negative unit economics or a high CAC may not spell trouble, but longterm success of a startup will likely be driven by good unit economics. 
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