The Unit Economics Of A B2B SaaS Sales Motion
CAC, LTV, payback, magic number. The four ratios most B2B SaaS companies misread. Here is the math and what each one actually tells you.
The four ratios that show up on every B2B SaaS investor deck (CAC, LTV, payback, magic number) are the most-quoted and most-misunderstood metrics in the category. Misreading any of them produces planning errors that compound for years.
CAC: what it costs to acquire a customer
Customer acquisition cost is total go-to-market spend divided by new customers acquired in the period. The trap is what counts as "go-to-market spend." Some companies include only direct marketing. Others include the entire sales organization, partnerships, and a fraction of executive time.
The honest number I always insist on is fully loaded: marketing program spend, sales compensation, marketing and sales headcount, tooling, and a reasonable allocation of executive overhead. A CAC computed without these is comforting and useless.
LTV: what a customer is actually worth
Lifetime value is gross margin per customer multiplied by expected customer lifetime. The trap is "expected customer lifetime." Most companies use the inverse of churn, which is right at scale and wrong early. A two-year-old company computing customer lifetime as "one over churn" is forecasting the future from a sample size of friends.
Use cohort retention curves where they exist. Where they do not, use a conservative range and stress-test the planning conclusions against it.
Payback: how long until you recover acquisition cost
Payback period is CAC divided by gross-margin-adjusted monthly recurring revenue. Twelve months is good. Eighteen months is acceptable. Twenty-four months is a fundraising story, not an operating one.
The version that matters is contribution-margin payback, not gross-margin payback. Contribution margin accounts for ongoing service costs, support, and customer success, all of which keep accruing after the sale closes.
Magic number: efficiency at scale
Magic number is net new ARR for the quarter, annualized, divided by the prior quarter's sales and marketing spend. Above one is healthy. Above 1.5 is excellent. Below 0.5 means the next dollar of GTM spend is going to underperform the previous one.
The number is most useful as a trend line over four to six quarters. A single quarter's reading is a snapshot of one frame in a moving picture.
Written by Ramy Stephanos. SF Advisor | Consulting.