Unit economics are the per-customer financials that determine whether a B2B SaaS business is fundamentally healthy: how much it costs to acquire a customer, how much that customer is worth, and how those two compare over time. A company can grow rapidly with bad unit economics for a few years; eventually they catch up. The four ratios that matter most are CAC payback, LTV/CAC, magic number, and net dollar retention.
The four ratios you actually use
| Ratio | Formula | Healthy range (B2B SaaS) |
|---|---|---|
| CAC payback | CAC / (Gross margin × MRR) | 12-18 months |
| LTV / CAC | LTV / CAC | 3x or higher |
| Magic number | Net new ARR / S&M spend prior quarter | 0.7-1.0 efficient; above 1.0 underspending |
| Net dollar retention | (Starting ARR + expansion - churn - contraction) / Starting ARR | 110%+ at scale |
CAC payback is the most operationally useful. It tells you how long the company is in the red on each new customer. LTV/CAC is more strategic but requires assumptions about churn and gross margin that fall apart for early-stage companies.
CAC payback in detail
The full formula is:
CAC payback (months) = (Sales + Marketing spend) / (Net new ARR × Gross margin) × 12A team that spent $4M on S&M in a quarter, added $3M of net new ARR, and runs at 80% gross margin has a CAC payback of $4M / ($3M × 0.8) × 12 / 12 = 20 months. That is on the edge of efficient but not yet alarming for a growing company.
CAC payback gets worse as you move upmarket (longer cycles, larger deals, higher costs) and better with PLG. A pure PLG B2B SaaS at scale often runs 6-9 months.
Magic number nuance
Magic number is the ratio of incremental ARR generated by S&M spend. It is the ratio venture investors care about most after growth rate.
- Below 0.5. Inefficient, scale will burn cash; do not hire more reps.
- 0.5 to 0.75. Acceptable for early-stage, problematic at scale.
- 0.75 to 1.0. Healthy; deploy more capital.
- Above 1.0. Underspending; you are leaving growth on the table.
The trap: magic number can be temporarily inflated by closing a backlog of late-stage deals. Look at the trailing 4-quarter trend.
NRR is the underrated one
For mature B2B SaaS, NRR (net revenue retention) matters more than new logo acquisition. A company at 130% NRR doubles ARR every 2.6 years from existing customers alone. A company at 90% NRR is filling a leaky bucket and growth is unsustainable regardless of new logo motion.
NRR depends on customer success, product expansion paths, and pricing model. It is the metric that compounds longest.
Common pitfalls
- Blended CAC. Mixing PLG and sales-led CAC produces a meaningless average. Compute each motion separately.
- Gross margin assumptions. Many teams assume 80% gross margin without measuring. Real B2B SaaS gross margin including support, infra, and onboarding is often 70-75%.
- LTV with bad churn data. LTV uses 1/churn. For a company with one year of data, the churn estimate has huge variance and LTV calculations are nearly fictional.
- Optimizing one ratio. Trading CAC for NRR (heavy CS spend) can be smart. Trading CAC for nothing is not. Always read the four together.
Related
- NRR vs GRR — the retention dimension of unit economics
- Pipeline velocity — the engine that produces ARR
- North Star Metric — the leading indicator that drives ARR
- Salesforce — where most ARR data is sourced