Unit economics

Developed in subscription and direct-marketing practice · 2000s

What it costs to win one customer, set against what that customer is worth over the whole relationship.

Its place in the frameworkBusiness Core›Finance

What it does

Acquisition cost against lifetime value, with the payback period between them. Its discipline is that growth stops being self-evidently good: a business that spends more to win a customer than the customer will ever return simply loses money faster the more it grows, and revenue charts hide that for years.

Reach for it when: Whenever growth is being funded, and before increasing spend on any channel.
Where it stops: Lifetime value is a forecast wearing the clothes of a measurement. Change the assumed retention slightly and the whole case turns over.

Developed in direct marketing and subscription practice; see David Skok, “SaaS Metrics 2.0”, 2013, for the standard treatment.

Why it sits at Finance

Where the money is, where it is going, and whether there will be enough. Finance is the object that constrains every other one, usually silently.

A model is only useful when you reach for it at the right moment. This one answers a question that arises here — so it is filed here, and nowhere else. These are the working areas it serves:

BudgetingBudgeting practice, and the long-standing critique that annual budgets encode last year’s assumptions unless deliberately rebuilt.
ForecastingRolling forecast practice, developed partly in response to the annual budget’s tendency to be obsolete on publication.
Cash flowWorking capital management: the cash conversion cycle, and the standard finding that growth increases the gap between paying and being paid.
Financial reportingStatutory reporting requirements alongside management accounting’s different purpose: one is for compliance, the other for decisions.

All of Finance

What it touches elsewhere

Nothing in a business is decided on its own. A conclusion reached with this model at Finance lands in these other cores, whether or not anyone follows it there.

Goal CoreResourcing decisions are made here; unfunded goals are goals in name only.
Business CoreMonetisation produces the revenue this object then has to manage.
Data CoreFinancial measures are the most reported and the most often confused with performance.
Time CoreRunway is a date, and it constrains every other date in the plan.

Filed at the same place

These answer questions that arise at Finance too. Where they disagree with this one, the disagreement is the useful part.

DuPont analysisBreak return on equity into margin, asset turnover and leverage, so the number says where it came from.
Break-even and cost–volume–profit analysisHow much has to be sold before the fixed costs are covered, and what each sale after that is worth.

Elsewhere in Business Core

These are other people’s models, named here so you can go to the source and use them properly. The Omnigoal is not affiliated with their authors and is not endorsed by them; nothing of theirs is reproduced here — no canvas, no diagram, no wording. Each is described in our own words, with the originator credited, because the framework is a place to put thinking, not a replacement for the people who did it. Model names and trademarks belong to their respective owners and are used here only to refer to the work itself.

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