Business Unit Economics: Margin, CAC, LTV and Runway

Define each metric before comparing it

Profit margin is profit divided by revenue. Markup is profit divided by cost. ROAS is attributed revenue divided by ad spend. None of these automatically equals net profit. Use consistent definitions across periods and avoid comparing a gross-profit LTV with a revenue-based CAC denominator.

Break-even is driven by contribution per unit

Subtract variable cost from selling price to get the contribution available to cover fixed cost. Fixed cost divided by contribution per unit gives the simple break-even volume. If contribution is zero or negative, more volume does not solve the model.

Runway is a cash measure

Cash runway uses current cash and net monthly burn. Accounting profit, unpaid invoices and non-cash expenses can make reported profit differ from cash movement. Keep inflow and outflow assumptions explicit and model a lower-sales case.

Reconcile the metrics back to cash

If ROAS, gross margin or LTV improves, trace the change through to contribution and cash movement before calling the business more profitable. Revenue-based metrics can rise while cash runway deteriorates if acquisition spending, refunds, working capital or fixed costs move in the opposite direction.

Keep definitions stable across periods

Document whether CAC includes only media spend or a broader acquisition cost, whether LTV is based on revenue or gross profit, and whether margin is calculated before or after a specific cost category. A trend is only comparable when the numerator and denominator mean the same thing in every period.