This article summarizes the content from a previous entrepreneurship course I attended.

1. Unit Economics

How is Unit Economics summarized?

In marketing consulting, especially when scaling a business, there is a focus on expanding service awareness, increasing customer numbers, and improving marketing efficiency (CAC), along with customer re-order rates and loyalty.

Various marketing considerations revolve around How much money should be spent to grow the company?

How can we improve the Unit Economics of our service?

How much money to spend to grow the company?

How much money to spend = Investment to acquire a customer (CAC)

How much growth can be achieved = Profit from each customer (CLTV)

2. CAC & CLTV

Customer Acquisition Cost (CAC) & Customer Lifetime Value (CLTV)

How are they related in Unit Economics?

💡 CAC = Marketing Budget / Number of New Purchasing Customers

💡 CLTV calculation varies by company: CLTV = Profit per customer (based on contribution margin, not GMV) * Customer lifespan = (Revenue generated over the customer's lifetime * profit margin) - Variable costs

3. Payback Period

The acquisition cost line represents the initial cost to acquire a customer, drawn horizontally.

CLTV accumulates over time as the customer generates revenue, forming a curve.

The point where the CLTV curve intersects with the acquisition cost line = Payback Point

This is the Payback Period, the time required to recoup the investment through CLTV.

The graph created by these three KPIs can vary.

B: Lower acquisition cost but longer payback period. C: Steeply rising CLTV but high customer acquisition cost, resulting in quick returns despite high initial investment.

Example 1

Initially, Company A grows steadily through online marketing with stable acquisition costs within target ranges, accumulating CLTV steadily.

The payback period is 12 months.

Later, they aggressively expand through branding campaigns, ATL campaigns, and mass marketing, increasing Customer Acquisition Cost significantly.

Despite higher CAC, new customers showed higher retention and purchase frequency, predicting higher CLTV, reducing the payback period.

Thus, expanding the channel proved justified due to sufficient ROI, driving service growth.

Example 2

Company S acquires customers at a CAC of 5000 KRW, while Company E's CAC is 20000 KRW. S aggressively uses its marketing budget due to its low CAC, while E is cautious due to its higher CAC.

S’s lower product price results in low customer spend per purchase and lower profit margins, leading to a payback period of 9 months.

E’s higher product price and profit margin, coupled with high customer loyalty, result in a payback period of under 3 months.

S faces sustainability issues with slow profit growth and should focus on retention marketing to increase CLTV.

E’s high customer quality justifies aggressive marketing despite higher CAC.

Incorporating Payback Period along with CAC and CLTV aids in data-driven decisions, improving company value through optimized Unit Economics.