ARPU, LTV and CAC: the unit economics of subscriptions

Three numbers tell you whether a subscription business makes economic sense: what each customer pays, how long they stay, and what it costs to win them.

ARPU

Average revenue per user (or account) is MRR divided by the number of active customers. If MRR is 400,000 across 200 customers, ARPU is 2,000 per month. Track it by plan, because blending a free tier with enterprise accounts hides everything.

Customer lifetime value

A common simple estimate is LTV = ARPU x gross margin / monthly churn rate. With ARPU of 2,000, an 80% gross margin and 3% monthly churn, LTV is about 53,000.

Treat it as a rough guide. It assumes churn stays constant and ignores expansion, so use cohort data once you have it.

Customer acquisition cost

CAC is total sales and marketing spend in a period divided by the new customers won in that period. Include salaries and tools, not only ad spend, otherwise the number flatters you.

Putting them together

• LTV:CAC compares what a customer is worth with what they cost to acquire. Many teams aim for around 3 or higher, but it depends on your cash position.
• CAC payback = CAC / (ARPU x gross margin). It tells you how many months until a customer has paid for themselves.

Knock reports ARPU and MRR by plan from your billing data, so you only need to add your own spend figures to complete the picture.